and joining us now to discuss is Greg Mcbride,
chief financial analyst at Bankrate dot com.
Greg, thanks so much for joining us this morning.
What were your key takeaways from the meeting yesterday?
Oh, great to be with you Chloe. Thanks for having me.
You know,
I think that the big takeaway isn't the idea that the
Fed is going to be raising rates in smaller increments,
It's the fact that they're going to keep raising interest rates,
that ultimate stopping point still unknown because
inflation has been running so hot.
So the operative questions become just,
how high is the Fed going to push interest rates and
how long are they going to keep them at that level?
Uh, and you know, both of which, you know, higher and longer,
really sort of seem to be shaping up as the interest rate mantra for 2023.
Now, Greg,
is this likely to deepen the economic pain for
millions of american businesses and households as well,
by pushing up the cost of borrowing what really
will be the effect of this hike on consumers?
Well, unfortunately,
we are going to feel the economic pain sooner
than we'll see the gain of lower inflation.
Uh you know, it does take time for these rate hikes to cycle through the economy.
It takes nine months or so, and the Fed just started raising rates eight months ago.
So, where there's a lot in the pipeline
That's likely to hit the economy in 2023.
And if you look at what's happened in housing and now
that's so abruptly gone from red hot to very cold?
I think that's an indicator of, you know, sort of type of slowing?
We might see in the broader economy next year, but again,
that's going to happen before we really, you know,
get the benefit of the lower inflation and the feds conundrum
is going to be at what point did they stop realizing?
Of course, that whatever every time they hike rates, it acts with a lag.
And so there's a real risk that they could overdo it.
That's one of the reasons that they're now shifting to a
stance where they will be raising into the smaller increments.
Yeah, Greg. Now, does this mean that we're going into a recession now into next year?
What does it mean about our odds there?
Well, the odds of a recession, particularly for 2023 is certainly growing,
the economy is in decent shape right now in the labor market is very robust.
Consumer spending is is very, very good.
I mean,
I think in large part because inflation is just
basically sucked every dollar out of the pocket book,
but, you know, those metrics are growing are working, they're spending money.
The problem is as we move into 2023 as the labor market loses some of that momentum,
job openings decrease.
Layoffs amount
than money and money continues to get more expensive?
That's where you start to see a retrenchment on both the
consumer and the business side and that's how our sessions are born
now, we keep talking about sort of the drawbacks of these rate hikes.
But what about savers they're benefiting?
How is it that they're benefiting from these higher interest rates?
Yeah, that's the plus side.
Savers are are seeing returns on things like savings accounts,
money market certificates of deposit that they haven't seen since 2008 and
parades are still rising so that the outlook is certainly very,
very promising.
Uh You know, what we need to see is is inflation come down in a material way?
I mean if you're shopping around you can earn 3.5 or 4% on
savings accounts and cds but for the 3.5 and 4% returns really shine.
We need inflation to come down from 8%
down to something closer to the Fed's 2% target. That's just going to take some time.
But at least the outlook much better for savers looking forward than what
they've had to endure for the past couple of years during the pandemic.
Now, Greg speaking of inflation, is this strategy working,
are we actually seeing inflation come down in any sort of meaningful way here?
Well, the Fed's policy acts with a lag, it's not an overnight fix.
Uh and so it will take time and unfortunately we will, you know,
feel the economic effects before we really get the benefit of the lower
inflation and to this point inflation is
just any improvements really remained elusive.
I mean, it remains very, very hot running north of 8%.
If you look at the Consumer Price Index and just incredibly pervasive,
there's not a whole lot of categories where we can really hang our hat and say,
oh well there's some improvement.
It's just, we really haven't seen that consistent sustained
retreat in price pressures and until we do it's going to put
pressure on the Fed to continue to tighten the screws economically.
You mentioned mortgages.
But I also want to talk about other borrowing, you know, credit cards, auto loans.
What are those types of borrowers up against here?
Yeah, I mean rates are rising at a whiplash inducing pace,
mortgage rates are at a 20 year high mortgage applications
as a result of fall into a 25 year low.
But credit card rates are at a 30 year high.
Home equity lines of credit at a 14 year high. Even car loan rates are at an 11 year high
and rates are still rising so that debt is going to get costlier.
And the real exposure that households have at this point is the variable rate debt.
The credit card,
the home equity line of credit that outstanding balance you already have.
It's getting more and more expensive to carry that debt. Greg.
Thank you so much for your time today and for
breaking that down so well for us that's Greg Mcbride,
chief financial analyst at Bankrate dot com