Will rates go up or down? What to pay attention to and how to respond

A woman sits down in her home while drinking her morning coffee and reading the newspaper
October 31, 2023 | Ben Heinze

After a long period of low rates, high inflation has led the Federal Reserve (commonly referred to as “the Fed”) to issue a series of rate increases that have greatly impacted many Americans’ finances and the decisions they’re choosing to make.

On the one hand, increased rates have led to higher savings and certificate rates than in recent years, making it easier to earn more on money left over at the end of the month. On the other hand, inflation and high loan rates mean that many have less extra income available to take advantage of those higher deposit rates.

While no one has a crystal ball and can fully predict how rates will change, there are factors you can pay attention to that give a good indication. You can use that information to make more informed financial decisions.

High inflation usually means higher rates

Current high rates are primarily a product of the high inflation experienced in the U.S. and worldwide. Due to the negative impacts of high inflation, the Fed has issued numerous rate increases meant to help reduce inflation. While the economic theory behind this is quite complex, the basic idea can still indicate what may happen going forward.

Pay attention to inflation reports in the media and if inflation is trending up or down from previous months. If inflation improves, rates are more likely to stay the same or decrease. If inflation is getting worse, the inverse is true. The Fed often hosts press conferences where they signal their intentions. Keep in mind that there is almost always some inflation, and the Fed typically aims for inflation around 2%. Higher inflation is also not a guarantee rates will rise.

Economic growth and GDP

Even though inflation is one of the primary indicators of how rates may change, it’s not the only one. The rate of gross domestic product (GDP) changes can also lead to rate changes. Like inflation, the Fed wants some growth but a sustainable amount. If growth is too high, they may raise rates to keep the economy under control.

Unemployment rate

Another key indicator is the unemployment rate. Higher rates can lead to unemployment due to decreased consumer demand. If unemployment is high, the Fed may be inclined to cut rates to help more people gain employment. This is because high rates discourage businesses from taking on risk due to increased borrowing costs, resulting in slower business expansion and less aggressive hiring strategies. However, if unemployment is already low, the Fed may decide increased rates is worth the potential negative side effects.

Making financial decisions based on rates

Current and potential future rates can have a big impact on your finances. Still, making the best financial decisions based on them can be difficult. The best decision for you depends on your personal life situation, but there are general guidelines that everyone can follow. The following tips can help you navigate common financial situations.


High mortgage rates have done much more than simply increase the typical monthly mortgage cost. Many homeowners are choosing to stay in their current home longer than initially planned if they locked in a low fixed rate before rates increased. Many renters are ruling out the idea of purchasing a home because of either being unable or unwilling to take on the new higher mortgage rates.

While there’s no one-size-fits-all answer for what you should do, remember that housing is as much of a lifestyle decision as a financial one. If you are ready to buy a house at your current stage of life, it may still be worth considering. Similarly, if you’ve outgrown your current home and need to upgrade, high mortgage rates won’t suddenly make your current home work for you. If rates go down after you buy, you can always refinance. If your current housing situation is fine, now may not be the best time to get a new mortgage.

Auto loans

Car payments are another large expense that has increased for many with higher rates. As with a mortgage, it’s not solely a financial decision whether you should take on an auto loan in the current rate environment.

Evaluate your current transportation situation and whether it’s working for you. If your current vehicle is fully functional and meets your needs, or if you have access to reliable public transportation, holding off on a new car payment may be wise.

If you do need a new vehicle, there are ways to reduce the burden of higher interest. A higher downpayment, shorter loan term, special promotional rates, making additional payments, shopping around for a lower rate, and a cheaper vehicle will all reduce the amount of interest you pay.

Savings and certificates

On a more positive note, now is a great time to take advantage of higher savings and certificate rates. A high-rate savings account is an ideal place to keep your emergency fund and extra cash meant for other savings goals.

Additionally, opening a certificate now will allow you to lock in the current rates for the entire term you select. Even if rates go down, you’ll still be earning the current, higher rates. This is a great option if you have extra money beyond your emergency fund and want to avoid stock market volatility. Certificates come in a wide variety of maturity dates and often have low deposit requirements.

Always remember that everyone’s financial situation is unique, and the best decisions for you may differ from the best decisions for others. Rates and the factors influencing them are also not set in stone, and no one can say with absolute certainty how rates will change going forward. Still, knowing the current rate environment and how it may change in the future is invaluable in developing a financial strategy that works best for you.


Check out these other articles about the current rate environment:

Ben Heinze is a marketing content specialist with a passion for financial education. Instilled with a strong sense of frugality from a young age, he views money as a means to building the life you want, rather than an end in itself. From reading Money Mentor, he hopes you discover new ways money can be used to build your ideal life—whatever that may look like.

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