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Published: Jun 14, 2023 6 min read

After more than a year of hiking interest rates, the Federal Reserve has hit pause on increases for now.

On Wednesday, the Federal Open Market Committee — the Fed branch that determines the direction of monetary policy — left the fed funds rate at a target range of between 5% and 5.25%. That comes after 10 consecutive interest rate hikes, which the central bank has been implementing in an effort to bring down inflation.

The break from interest rate hikes had been widely expected, coming on the heels of the latest report on consumer prices showing that inflation rose at an annual rate of 4% in May — the lowest annual rate in about two years.

But that doesn't mean we won't be seeing more interest rate increases this year. In fact, the policymakers pushed their median rate forecast up to 5.6%, which suggests they may expect two more rate hikes by the end of 2023. During a press conference on Wednesday, chair of the Fed Jerome Powell reiterated that nearly all committee participants expect it will be "appropriate" to raise interest rates somewhat further by the end of the year.

What does a pause in rate hikes mean for your money? Here's what you should know.

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What the Fed's interest rate hike pause means for your money

By increasing the federal funds rate for many months, the Fed has made it more expensive for banks to borrow money from one another. That has a trickle-down effect that makes borrowing money more expensive for consumers, too — think rate increases for mortgages, credit cards and auto loans.

Because of that, the rate hike pause may be welcome news for consumers, but "a lot of the damage has been done" with how aggressive hikes have already been, says Bill Van Sant, executive vice president and managing director at Girard, a Univest Wealth Division. As in, many of the variable-rate loans currently held by consumers have already increased.

However, this Fed decision does give consumers some breathing room to address their debt levels, he adds.

"This provides a pause for consumers to say, 'How do I get this under control?'" Van Sant says, adding that, for example, if you have credit card debt, consolidating that debt might make sense.

There may also still be opportunity for consumers to benefit from high savings rates — sometimes over 5% APY. Rates on certificates of deposits (CDs) and high-yield savings accounts have increased with the Fed's rate hikes — but consumers aren't too late to take advantage, Van Sant says. What he would not recommend is waiting for more bank rates to continue increasing, since he says — even if we see more increases — we're probably more towards the tail end of the rate tightening cycle.

Rates on those savings vehicles may still go up a tad, but "it's not worth the consumers the opportunity cost of waiting for future rate hikes to get that incremental increase in interest," Van Sant adds.

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What the Fed's interest rate hike pause means for investments

Stock prices immediately fell on Wednesday following the suggestion that we can expect further rate hikes this year.

While the interest rate increases of the last year do appear to be working when it comes to cooling inflation, they've also weighed on the price of financial assets, like stocks and bonds. That means investors may be cheering for a pause in interest rate increases — but experts advise not getting ahead of yourself, since the Fed may keep rates at their current elevated level for some time or hike them more. A rate hike pause is not the same as a rate cut.

"Fed officials expect rates to eventually move higher through the end of the year, which could be a shock to investors hoping for some breathing room," Callie Cox, investment analyst at eToro, said in a written statement shared with Money. "This wasn’t what people were expecting after a 4% CPI print, but it shows how serious the Fed is about getting inflation back down to target."

She adds that investors likely want to keep focusing on quality investments, since a slowing economy, tighter lending conditions and high rates put smaller, more speculative firms at risk.

In general, financial advisors tend to recommend not trying to time the market based on short-term changes.

"If your goal is to save for retirement or your child’s college tuition in a decade, don’t let short-term market swings caused by these announcements and other factors steer you away from long-term earnings potential," Sara Kalsman, financial planner at Betterment, told Money via email.

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