By Sabrina Karl

The Federal Reserve’s first 2023 rate-setting meeting is coming up, and after 2022’s historically fast rate increases, all eyes are on what they’ll do this year. Will rates move higher still?

First, a recent history primer. At the pandemic’s outset, the Fed dramatically dropped the federal funds rate to zero over the course of two emergency meetings, aiming to prevent a Covid-triggered financial crisis.

The federal funds rate is the interest rate that banks charge each other for overnight loans of their reserves, and where it has the biggest consumer impact is in deposit rates (savings, money market, and CD accounts) and short-term debt, like credit card rates. The federal funds rate does not directly influence mortgage rates, though there is some ripple effect.

Last March, the Fed began building the federal funds rate back up. They started with a quarter point hike, but as the threat of inflation became stronger, they ramped up their next hike to 50 basis points, and then followed that with four hikes of 75 basis points, followed by another 50-point hike in December.

As a result, we’ve witnessed the fastest rise in the fed rate in more than 40 years, with an increase of 4.25% over just 10 months. But where will they go from here?

While there is no crystal ball for predicting the Fed (they make each decision based on the latest economic data), it’s strongly expected that 2023 will see minor additional movement upwards, but that 2022’s fireworks are behind us.

Specifically, market forecasters currently predict we’ll see a mild quarter-point increase on February 1 and another quarter point March 22, followed by a period of holding steady. After that, some predict the Fed will start lowering rates in late 2023, though rate predictions that far out are less reliable.