Raising interest rates to deliberately slow the U.S. economy isn’t a job for the faint of heart, but the next test for the Federal Reserve could make even that challenging task look simple.

Officials will soon have to decide first when to slow the pace of interest rate hikes — and then when to halt those increases altogether. The higher borrowing costs climb, the more pressing it will be for U.S. central bankers to figure out.

Interest rates in September officially crossed the crucial level of 2.5 percent — thought to be the “neutral rate of interest,” or the point at which borrowing costs are believed to be taking steam away from the financial system. Economists say the move marks the point when the job market and broader economy could start to bend underneath the weight of monetary policy; though, what really matters is when interest rates could start to break inflation.

Pulling back on rate hikes too soon risks keeping inflation elevated, meaning any Fed pause could be short-lived. But doing too much could slow the economy more than necessary, harming Americans’ job prospects and further squeezing people’s buying power. Both roads could lead to disastrous consequences for consumers’ wallets, and they underscore the Fed’s hopes to get it right. But the Fed isn’t ready to call it quits just yet.

“The Federal Reserve continues to see a bright green light with respect to future interest rate increases,” says Mark Hamrick, Bankrate senior economic analyst. “Based on the latest snapshots of inflation, they believe the target range for the federal funds rate must go higher from here. There’s no pivot yet in sight, only a push to higher ground.”

When will the Fed stop hiking rates? Pay attention to the Fed’s peak rate

Most economists say the Fed will likely stop raising interest rates at some point in 2023, but “where” rates peak — a level known as the “terminal” rate — is more important than “when.”

Fed officials are clearly divided over how much further above neutral they’ll have to take interest rates. The highest estimates from the Fed call for an additional 1.75 percentage points worth of rate hikes from here. Those projections show the Fed’s key federal funds rate peaking in a target range of 4.75-5 percent by the end of 2023, meaning the Fed would take rates to a 16-year high when it’s all said and done.

Yet, the median projection says the Fed’s rate will top out at 4.5-4.75 percent in 2023, slightly lower but still the highest since 2007. Economists in Bankrate’s Third-Quarter Economic Indicator poll also see rates peaking at that level.

“There is a possibility, certainly, that we would go to a certain level that we’re confident in and stay there for a time, but we’re not at that level,” Fed Chair Jerome Powell said in a post-meeting press conference in September. “We’ve just moved into the very lowest level of what might be restrictive.”

The Fed has said it wants to reach that peak level as quickly as possible in a so-called “front-loading” of interest rates. The idea is, the sooner you get interest rates to the point that might start to cure inflation, the less you risk overdoing it.

As of September, policymakers planned to take the fed funds rate to at least 4.25-4.5 percent by the end of this year, according to their projections.

If those expectations come to fruition, it’d likely mean the Fed will raise rates by three-quarters of a point for the fourth time this year when they next meet in November, followed by a slightly slower 50-basis-point hike in December.

And if the highest of the Fed’s 2023 estimates come true, 50 basis points worth of tightening could be all that’s left for 2023. With the median estimate, one hike in 2023 worth a traditional quarter of a point would be on the table.

Hotter-than-expected inflation is leaving some economists to predict a peak Fed rate of 5% — or higher

Yet, those projections came before consumer inflation didn’t cool as much as expected in September, rising 8.2 percent from a year ago in the Department of Labor’s consumer price index (CPI) report.

Prices on many items also moved in the opposite direction the Fed wants: up. Health insurance jumped at the fastest pace on record (28.2 percent) from a year ago, while medical care services are up another 6.5 percent. Rent, meanwhile, jumped 7.2 percent over the same period, the biggest leap since 1982. They’re also adding the most growth to year-over-year inflation since the early 1990s, according to Ryan Sweet, senior director of economic research at Moody’s Analytics.

One of the biggest lines in a households’ budget is continued increases in shelter costs could offer Americans — and the Fed — little relief on the inflation front. It’s also raising the risk that the Fed might have to hike rates even higher than they expected just last month.

Fed Chair Jerome Powell has said policymakers have one North Star: Getting inflation down to their 2 percent target.

“No one really knows where it’s going to end,” Sweet says, referring to the Fed’s terminal rate. “If the economy shows signs of weakening suddenly, they’ll likely lower that terminal rate. They’ll raise it if inflation continues to linger.”

Investors quickly recalibrated their predictions for the Fed’s final meeting of the year after inflation’s upside surprise. Slightly more than half (or 51 percent) now say the Fed will approve a three-quarter-point hike in December, up from just 3.7 percent a month ago, according to CME Group’s FedWatch. That would be the fifth such move and take interest rates to a target range of 4.5-5.75 percent, assuming the Fed also moves by that magnitude in November.

Some market participants joined economists at Barclays and BNP in now expecting the Fed will want to get to a target range of 5-5.25 percent, 50 basis points higher than the Fed’s current median projection. Interest rates haven’t been at 5 percent since 2001, according to a Bankrate analysis of Fed rate data.

Even Minneapolis Fed President Neel Kashkari acknowledged rates could rise higher than 4.75 percent, depending on what happens with inflation.

“Monetary policy is slowing the economy, but the question is how much will that pass through to inflation?” says Bill English, finance professor at the Yale School of English who spent 20 years at the Fed. “It looks like it’s going to be so much harder to bring inflation back down again than the Fed is projecting.”

On the other side of the coin, St. Louis Fed President Jim Bullard — who has a vote on the Fed’s rate-setting Federal Open Market Committee (FOMC) this year — said in an October interview with Bloomberg that, at some point, enough will be enough. He indicated the Fed would still end its front-loading next year.

Those comments came just a week after Bullard suggested in a separate interview with Reuters he might support a 75-basis-point hike in December.

“You do have to think about what the reasonable level is,” Bullard told Bloomberg. “It doesn’t mean that you go up forever. … Now you’re at the right level of the policy rate, you’re putting downward pressure on inflation, but you can adjust as the data come in in 2023.”

Predicting Fed policy is a bit like blindly throwing darts at a board. The further out into the future officials go, the higher the margin of error for those projections. Yet, the challenge with forecasting — especially now — is inflation has been unpredictable.

Policymakers compile those projections after looking at economic models from their research staff. The U.S. central bank won’t release fresh updates until its December gathering.

“Powell can do one of two things: Step on the gas or step on the brake,” says Robert Barbera, director of the Center for Financial Economics at Johns Hopkins University. “Except you can’t see in front of you because the windshield is covered in black paint; the only thing you can do is look in the rearview mirror. You’re stepping on the gas or the brake as a consequence of what you know was happening, rather than what you know will be happening.”

Yelena Maleyev’s team at KPMG sees rates peaking at a lower 4.25-4.5 percent amid spillover effects from turmoil in global capital markets. The Bank of England, for example, instituted an emergency bond-buying program in late September amid a plunge in bond yields tied to sweeping tax cuts in the United Kingdom.

“The reaction a lot of central banks and governments are having could amplify each other,” she says. “A mild but prolonged recession — that is essentially the best case scenario. The downside is a larger global financial crisis, even to the point where the Fed has to stop hiking rates.”

Why the Fed’s peak rate matters for consumers

Savers looking to maximize their earnings will want to pay close attention to the Fed’s terminal rate. It might indicate when yields have hit their ceiling, though banks’ offerings still depend on money-related supply and demand factors in addition to Fed moves.

Banks have more than doubled their payouts since the start of the year, while individuals who park their cash at an online bank have seen even bigger earnings. Yields at those nontraditional institutions have been climbing by the week, with some even offering a 3 percent annual percentage yield (APY) as of Oct. 24.

Figuring out when the Fed will stop hiking rates is also important because of the debate that often follows: When to start cutting. Just don’t expect it to happen so soon.

The Fed is going to be looking for “compelling” evidence that inflation is moving back down to its 2 percent target before making it cheaper to borrow money, Powell added at the Fed’s September post-meeting press conference. Records of the Fed’s September gathering show policymakers thinking rates will hold at a “sufficiently” restrictive level “for some time.”

“It’s not hard to imagine scenarios where they end up raising rates a fair amount next year,” English says. “It’s also possible they end up cutting rates more if the economy really slows and inflation comes down a lot. It’s hard to be confident about your outlook. The best you can do is balance the risks.”

A forecast from investment bank Morgan Stanley shows the Fed cutting rates by 25 basis points in December 2023. Investors are also starting to predict rate cuts for later in the year, according to CME Group.

Borrowers will be holding their breath for that moment, especially would-be homebuyers who have been priced out of an already pricey housing market long before officials first started hiking rates at a breakneck pace. The 30-year fixed-rate mortgage has more than doubled since the start of the year. Interest rates rose to a 16-year high of 6.92 percent in the week that ended on October 19.

But mortgage rates certainly don’t have to wait for the Fed’s word to start falling. Influencing the key home loan even more than the Fed is the 10-year Treasury yield. That key rate and then the 30-year fixed-rate mortgage could fall like dominoes if investors turn attention away from surging inflation — and instead start to fret about a recession.

A Bankrate survey of economists showed a 65 percent chance of a recession between now and the end of 2024. The Fed isn’t shy about the consequences of higher rates. They’ve stopped short of saying they expect a recession but acknowledge pain may lie ahead.

Policymakers see unemployment rising to 4.4 percent by 2023, a 0.9 percentage point gain from its current level of 3.5 percent. That’s never happened with the U.S. economy being in a downturn.

“The path is very narrow, and the Fed has to pull a rabbit out of their hat [to avoid a recession],” Sweet says. “They’re going to break inflation no matter what. The risk is that they do too much.”