Consumer Alert: Making high interest rates work in your favor

(WJAR) — The Federal Reserve announced Wednesday that it’s raising interest rates for the eighth consecutive time.

It’s a modest 0.25% rate hike, which the Fed hopes will continue to curb inflation.

The NBC 10 I-Team caught up with Bankrate's Chief Financial Analyst Greg McBride to find out how effective these rate hikes have been at stabilizing prices.

“Does it seem to be working -- this tactic of continually increasing the interest rate?” NBC 10 I-Team's Emily Volz asked.

McBride responded, “Raising interest rates acts as a breaking mechanism on the economy, but it happens with a lag.”

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“So if you think about driving a car, you press the brake, if it took 30 seconds before the brakes actually activated – that's sort of what the Fed is looking at with the economy. They raise interest rates and it takes a while for that to take effect," he added.

“The seven rate hikes last year are really going to have a full effect on the economy here in 2023 and that's why you see so many forecasts for an economic slowdown or a recession,” said McBride. “We are starting to see inflation moderate -- that's a step in the right direction, but there's still a long way to go.”

If you're in the market for a new car or a new home, obviously this latest rate hike isn’t ideal, but McBride said there is a way to make these high interest rates work for you.

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“You're being rewarded for your savings, particularly with all the economic uncertainty on the horizon, nothing helps you sleep better at night than having some money tucked away for a rainy day,” said McBride. “You're being paid for that money better than you have at any point in the last 15 years, but you have to have it in the right place, look at online savings accounts, look at community banks and credit unions, that's where you're going to find those returns of 4% or better.”

McBride said it's unclear how many more interest rate hikes will come this year, but many analysts are predicting one or two more, depending on how quickly inflation continues to slow down.