Banks are paying the most in interest in over a decade. Credit card rates hit record highs. Mortgage rates surged at a speed that’s never been seen before — and the U.S. economy is expected to face the most widely predicted recession in years.

Consumers have officials on the Federal Reserve to thank for the most volatile borrowing environment in 40 years, but those rate increases were never expected to last forever.

The end may now be near.

Officials are projected to lift interest rates by another quarter point when they meet for their next rate-setting meeting on May 2-3. Yet, experts say this could be the final hike — at least for now. With inflation slowing and a possible credit crunch from two major bank failures threatening the economy, policymakers may now be willing to wait and see whether they’ve already done enough. The totality of the Fed’s rate hikes — a whopping 500 basis points of tightening since March 2022, assuming the Fed moves forward with another in May — now matters more than any additional increase.

This could be the Fed’s last rate hike for a while, but we’ll have to wait and see. If inflation were still trending upward, tighter credit or not — the Fed would keep raising rates. — Greg McBride, CFA, Bankrate chief financial analyst

Here’s what to expect from the Fed’s May meeting, including how officials could paint their next move as the economy stands on uncertain footing and what moves you should consider making with your money.

Key takeaways:

Federal Reserve
  • The Fed is expected to raise interest rates by a quarter of a percentage point, bringing the benchmark interest rate to 5-5.25 percent, the highest since 2006.
  • More than half (or 53 percent) of experts polled for Bankrate’s First-Quarter Economic Indicator poll say the Fed’s key benchmark interest rate will peak in a target range of 5-5.25 percent.
  • Nearly one-fifth (or 18 percent) in Bankrate’s economists’ poll say the Fed has two more rate hikes left, bringing rates to a target range of 5.25-5.5 percent before pausing.
  • The majority (or 88 percent) of economists say inflation will likely keep decelerating this year, but most experts aren’t confident price pressures will hit the Fed’s 2 percent target.
  • Economic headwinds include fears of the federal government defaulting on its debt, along with less bank lending after two recent banking turmoil.

1. Could this be the Fed’s final rate hike?

Fed officials have been forcefully winding up interest rates since March 2022, approving nine straight increases to borrowing costs — four of which were the biggest since 1994 — without any breaks. Not since before the financial crisis have officials raised interest rates at that many meetings, back to back.

The 10th time, however, may be the charm.

Fed officials in their most recent projections from March penciled in a peak federal funds rate of 5-5.25 percent, which would be the highest since 2006 and signal one more quarter-point hike.

Economists and investors quickly took note. More than half (or 53 percent) of experts polled for Bankrate’s First-Quarter Economic Indicator poll say the Fed’s key benchmark interest rate will peak in a target range of 5-5.25 percent. Market participants, meanwhile, don’t see the Fed lifting above that target range, according to CME Group’s FedWatch.

“One more move should be enough for us to then take a step back and see how our policy is flowing through the economy,” Federal Reserve Bank of Atlanta President Raphael Bostic said in a mid-April interview on CNBC, referring to his projections of one more rate hike and then a pause “for quite some time.”

Even Fed Chair Jerome Powell pointed to those projections referencing one more rate hike, when asked how much more the Fed could raise rates in a private meeting with lawmakers on March 29, according to Rep. Kevin Hern, a Republican from Oklahoma.

Caught up in the mess of the banking crisis, First Republic Bank lost more than half of its customer deposits (nearly $102 billion) as fears about more bank failures spread to other financial institutions, the bank reported in its first-quarter earnings. That’s just one bank, and stress at other firms could cause a credit crunch to get even tighter, McBride says.

“If banks see a big outflow of deposits, they’ll need to scale back the pace of lending,” he says. “Credit has been tightening since last summer, and it was going to continue to tighten by virtue of the Fed. The banking turmoil in March accelerated that process.”

Less lending could slow economic growth, investing and spending. That would do some of the Fed’s work for it. Officials admitted in records of the March meeting that the turmoil led them to “lower their assessments of the federal funds rate target range,” judging that rates wouldn’t need to rise as high to weigh on demand.

“At moments like this, of financial stress, the right monetary approach calls for prudence and patience — for assessing the potential impact of financial stress on the real economy,” said Chicago Fed President Austin Goolsbee, who has a vote this year, in an April 12 speech.

Still, seven policymakers project that rates might need to rise slightly higher to cool inflation. Three officials in the Fed’s March projections see rates rising to 5.25-5.5 percent, another three see 5.5-5.75 percent rates, while one lone official sees rates hitting 5.75-6 percent — the highest since 2001.

On the margins, some economists in Bankrate’s poll predict even higher rates. Nearly one-fifth (or 18 percent) say the Fed will have to hike interest rates to 5.25-5.5 percent, while nearly 12 percent say the Fed won’t stop until rates hit 5.5-5.75 percent.

“You wouldn’t want to be caught giving forward guidance that said we’re definitely not doing anything and then have inflation coming in too hot or too sticky,” said St. Louis Fed President Jim Bullard in an April 18 interview with Reuters. Bullard said he’d support raising interest rates to a 5.5-5.75 percent target range, though he doesn’t have an official vote on policy this year.

It’s easier to know what to do with monetary policy when interest rates are low, and inflation is high. Goolsbee and Bullard’s separate comments hint that disagreements could pop up on both sides, raising the likelihood of dissent — a first since June 2022.

“There’s going to be split on the committee around the notion of policy being sufficiently restrictive,” says Joe Brusuelas, chief economist at RSM. “Dont expect anything definitive that tells you they’re going to stop. We’re not going to know until we know.”

2. How long will the Fed be on pause — if at all?

But Powell & Co. will want to keep their options open, especially if inflation heats back up or the labor market accelerates. It calls into question whether a pause will be implied rather than explicitly declared.

Fed officials have specific ways of signaling their next moves to the public. To suggest they were about done raising rates, policymakers nixed a phrase about expecting “ongoing increases” from its post-meeting statement last month. They changed it to “some additional policy firming may be appropriate.”

“That four-word phrase is what the entire May policy meeting will turn on,” Brusuelas says.

One possible new phrasing could suggest rates are “sufficiently restrictive” to bring inflation back down to 2 percent, Brusuelas says.

During the Fed’s last rate hike before the financial crisis, Fed officials noted “the extent and timing of any additional firming” will depend on the outlook. Then, when the Fed started gradually raising interest rates as the financial system recovered from the Great Recession, Chair Janet Yellen emphasized that policy was “not on a preset course” and could change “if the economic outlook shifts.”

“That kind of language indicates there’s not a bias toward raising rates at the next meeting, but it keeps their options open for whatever eventuality unfolds,” McBride says.

The ultimate question is what the Fed’s next move could be, after it decides it’s done enough. Powell will certainly emphasize in the Fed’s post-meeting press conference that officials wouldn’t hesitate to get back to hiking interest rates if it looks like they’ll need to slow the economy further.

Investors, however, are hoping the next move could be a rate cut. Market participants see the Fed cutting rates 75 basis points beginning in September, a sentiment that officials themselves haven’t shared. Policymakers in their March projection penciled in 100 basis points of rate cuts by the end of 2024.

Just 18 percent of economists in Bankrate’s quarterly survey also said the Fed could cut rates this year, down sharply from 38 percent in the fourth-quarter poll.

One expert projecting rate cuts this year is Jeffrey Roach, chief economist at LPL Financial.

“They’re going to be able to say with confidence, with the data backing it, that inflation is easing, and at the same time, the overall economy is slowing,” he says. “If you take those two in conjunction, it makes a pretty compelling case.”

Fed staff — who are research-based and different from Fed officials — noted during the Fed’s March meeting they were expecting a mild recession starting later this year, with a recovery taking a subsequent two years, the Fed’s minutes showed.

“We know that recessions will have those knock-on effects, with easing inflation and slowing job growth,” Roach says.

Price pressures have also gradually cooled from the 9.1 percent high in June 2022 to 5 percent as of February. A separate measure excluding food and energy shows inflation is still hot — up 5.6 percent over the past 12 months. Experts say getting to 2 percent inflation from 5 percent may be the hardest phase yet. But the gradual slowing in inflation overall means interest rates are soon about to hit a pivotal point: They may eventually be higher than inflation. It points to just how much higher rates are currently slamming the brakes on the economy.

3. From banking stress to now a debt ceiling crisis, how will officials handle the current major economic headwinds?

More than a month after the two bank failures, another economic headwind has entered the conversation: the threat of the federal government defaulting on its debt.

If the government stopped paying just some of its obligations for an extended period, joblessness could soar as high as 7 percent, the economy could enter a recession within six months and inflation could pick back up, according to Brusuelas’ models.

The clock to raise the debt limit is ticking. Since January, the Treasury Department has been moving cash around through so-called “extraordinary measures” to cover its debts. Those measures were expected to bridge the government through August, buying lawmakers time to strike a deal. Tax receipts, however, are about 35 percent lower than last year, putting the government at risk of default as early as June, according to a new analysis from Mark Zandi, chief economist at Moody’s Analytics.

With default posing major threats to the economy, price stability and employment overall, the question now is when the Fed might be willing to chime in — and what it might do, if the debt ceiling isn’t raised in time to avoid default.

“There’s only one way forward, and that is for Congress to raise the debt ceiling,” Powell said in February, his only comments on the issue.

Recently published transcripts from a similar debt ceiling debacle in 2013 reveal steps the Fed could take in a similar crisis. At the time, Powell was a Fed governor.

Some of the options the Fed toyed with included buying Treasury securities, injecting cash in the market for repurchase agreements to keep the federal funds rate in its designated target range, while also lending cash through the discount window to act as a lender-of-last-resort for banks. Powell referred to more extreme steps — such as outright purchasing securities with delayed payments or even swapping them with non-defaulted Treasurys — as “loathsome,” according to transcripts of the call that were made public in 2018. He did tell Chair Ben Bernanke he’d be willing to accept loathsome under “certain circumstances.”

The prominent concern was the Fed’s toolkit can’t fix the problem; it can only alleviate the carnage. Powell also had concerns that meddling in fiscal policy matters could discourage lawmakers from taking action.

“We obviously have an independent role to play, and I think that when financial stability threatens our execution of the dual mandate, at that time we should communicate as we see fit,” Powell said back in October 2013.

Brusuelas says Powell will still remain tight-lipped on the subject but said the Fed will reassure financial participants on the quality of government-issued debt, should the crisis get to that point. Treasury securities are the bedrock of the financial system and have remained among the most liquid and safest assets in the world — but only because the government has always paid its debts on time.

“Now is the time to engage in a strategic pause, to ascertain that impact and to actively manage risks around the outlook,” Brusuelas says, “which have to do directly with the recent banking crisis and the upcoming debt ceiling and geopolitical tensions, which are altering the nature of the global economy.”

What this means for you: 3 moves to make with your money

1. Prioritize paying off high-interest debt

Even once the Fed is done raising interest rates, borrowing costs will be higher than they would’ve been when rates were at near-zero. In other words, it doesn’t mean consumers are all clear on being able to score a cheaper car loan, personal loan or even lower credit card rate.

Credit card rates hit a record high in November and have continued to hit new peaks, rising to 20.22 percent on April 19, according to Bankrate data. That’s nearly 4 percentage points higher than the average credit card rate in January 2022, when rates were at near-zero.

“Even once the Fed moves to the sidelines, debt is still very expensive,” McBride says. “Certainly prioritize paying down debt and getting out of debt because it’s not going to get materially cheaper anytime soon.”

2. Take advantage of any balance transfer offers now

Balance-transfer cards are one of the best ways to accelerate how quickly you can pay off your credit card debt. Many offers on Bankrate come with 0 percent intro annual percentage rates (APRs) lasting anywhere from 15 to 21 months.

Those offers, however, can disappear during downturns. Bankrate currently ranks 11 of the best offers, as of April 2023. That’s up significantly from the four offers in Bankrate’s rankings from April 2020, during the worst of the coronavirus pandemic.

If you’ve been struggling to handle your credit card balance or have recently packed on even more debt, consider taking advantage of a balance-transfer offer now before any offers potentially disappear.

3. Lock in any longer-term certificates of deposit (CDs) you’ve been eyeing and build up your emergency fund

Yields on the average savings account have more than doubled since the Fed started raising rates. High-yield savings accounts are paying even more in interest.

Bankrate’s picks for the 11 best high-yield savings accounts are offering an average yield worth 4.5 percent, ranging from as high as 4.81 percent to a low of 4.25 percent. That compares with the average yield of 0.51 percent for the 14 banks ranked as Bankrate’s best high-yield savings accounts in July 2021, long before the Fed had started to lift interest rates.

Higher interest rates mean bigger earnings for savers. Yet, savings yields can fluctuate.

Americans can’t lock in the best yields in a decade unless they take advantage of a certificate of deposit (CD). The highest-yielding, longer-dated 2-year and 5-year CDs are paying 4.75 percent and 4.5 percent, respectively, according to Bankrate’s listings.

While the Fed influences those yields, they can often start to fall once rates hit their peak — meaning now could be a crucial time to take advantage of adding one to your wallet. But be sure not to put your emergency fund in a longer-term CD, which isn’t as liquid as a savings account.

“With two out of three economists forecasting a recession, that’s ringing a bell right now that you need to boost your emergency savings,” McBride says.