NerdWallet: What will happen with inflation, interest rates and housing? Here’s what to expect in the next two years, and what could go wrong.

by | Oct 8, 2022 | Stock Market

This article is reprinted by permission from NerdWallet. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Let’s assume the Federal Reserve knows what it’s doing.

The central bank is slowing the economy with a series of painful interest rate increases. Its goal: Reduce the current 8.3% year-over-year rise in consumer prices, bringing them down to the Fed’s 2% target. With five such interest rate hikes under our belt this year, many of us may wonder: What’s next? Also see: Are the rich or poor hurt more by inflation?Brace for another year of high interest rates — and prices Most analysts agree — and Fed Chair Jerome Powell has said as much — interest rate increases still have a long way to go. Short-term rates are currently around 3% and the Fed is targeting 4% to 4.5%, so additional rate hikes will likely continue through early 2023. “While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said at an economic policy symposium on Aug. 26. “These are the unfortunate costs of reducing inflation.”So when does it get better? Here’s how things are expected to go as we wash inflation out of the economy:Through the end of 2022 Look for two more interest rate hikes by the Fed, in November and December. That means the cost of money for home purchases and refinances is likely to get more expensive until inflation eases. While current 30-year mortgage rates of around 6% are below the half-century average of nearly 8%, we’re not likely to see a turn much lower over the next 12 to 18 months. You’ll also continue to see higher interest fees for carrying a balance on your credit card.In 2023 There’s likely to be another interest rate increase next year — and at that point, the Fed may stand pat, seeing how the tighter money supply impacts the economy and, most importantly, consumer prices. Following an extended period of solid job growth as the pandemic wanes, employment will soften. There are likely to be …

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