Rate Hikes and Jobs News: What’s Happening This Week

To view this email as a web page, click here.

What's Happening Today

Buckle up, because this week could bring some bumps and turbulence. The Federal Reserve is set to kick off yet another policy meeting tomorrow and will make an announcement about further interest rate hikes on Wednesday. While it's largely expected the Fed will continue to hike rates, how aggressive the central bank will be remains a mystery. Right now, markets are pricing in a nearly 90% chance that we will get another jumbo rate hike of 75 basis points.

The Fed continues to aggressively hike rates to bring down inflation, which is stubbornly sitting at an annual rate of 8.2%—far from the central bank's target of a 2% inflation rate. The more aggressive rate hikes are, the more economic pain we might all feel going forward. That could mean more job losses, more volatility in the markets, and more expensive loans from your bank, whether it's for a house, a car, or your credit card debt.

All of that brings a greater likelihood of that dreaded R word: recession.

Stocks are falling today ahead of the Fed's next moves. Markets had largely mounted a comeback this month on higher-than-expected growth in consumer spending and mixed earnings reports. While some companies reported strong growth, Meta and other tech heavyweights signaled that growth was slowing amid headwinds including the Fed's rate hikes.

But that's not all we will be watching: In a double whammy to your portfolio and to your job prospects, the Labor Department will also release the latest jobs report at the end of the week, which could show if unemployment is rising. The job market has been very strong so far. There are still more jobs than there are workers, wages keep rising, and the unemployment rate is still relatively low. On Friday we will see if the Fed's rate hikes have taken a bigger toll, which could signal that a recession is approaching.

- Kristin

Editors' Picks

How the Fed's Rate Hikes Slow the Economy — and Impact You (The Washington Post)

Higher Interest Rates Fuel Losses at the Federal Reserve - WSJ (The Wall Street Journal)

Consumers are Shopping Till Their Savings Drop (The Balance)

1 in 3 Voters Say Fixing the U.S. Economy Should Be Top Priority—Here Are 3 of the Money Issues They Care About Most (CNBC)

Comparing Health Savings and Medical Savings Accounts (The Balance)

10 Things to Know About a Health Savings Account (The Balance)

Can My Boyfriend and I Be Equal Financial Partners? (The Balance)

Term of the Day

Health Savings Account (HSA)

A health savings account is a special savings account that is meant to be used for health care expenses. These accounts can be offered with high-deductible health plans and are funded with pretax dollars. That means the money can come out of your paycheck before taxes are taken out of your pay, and you can stash it away until you need it for a medical expense. Some employers offer matching contributions for HSA plans.

Best of all, the money can be invested and grow tax-free, and then you can withdraw the money tax-free for qualified medical expenses. The Internal Revenue Service (IRS) determines which expenses qualify. Many over-the-counter medicines are covered, too. And the money in your HSA rolls over every year, even if you change employers.

Off the Charts

As the Fed hikes the federal funds rate to curb inflation, the average annual percentage rate (APR) also rises, making credit card debt more expensive. The higher the interest rate and the longer it takes you to pay off a balance, the more you could pay in interest.

For instance, a balance of $5,221 at the current average credit card APR of 21.96% wouldn't be paid off for more than 16 years, during which you'd pay a total of $13,283.18 to the credit card company—$8,062.18 of it in interest. That calculation assumes you'd paid just the minimum due during that time (1% of the balance plus interest and a $35 minimum payment) and that you didn't add any more debt to the account.