The Federal Reserve raised interest rates on Wednesday by a quarter of a percentage point to the highest level in more than 22 years in an effort to slow inflation. 

The central bank’s Federal Open Market Committee determines monetary policy and dictates how expensive many forms of consumer debt will be including mortgages, credit cards, auto and personal loans.

The latest rate hike — the 11th since March 2022 — pushes interest rates to a target range of 5.25 percent-to-5.5 percent. The midpoint of that range would be the highest level for the benchmark rate since early 2001.

Americans enjoyed ultralow interest rates on debt such as mortgages and car loans in the years after the 2008 financial crisis. Despite rising rates on some loans such as credit cards, a huge portion of consumer debt carries low interest rates. This has allowed many Americans to keep spending, which has kept the economy going strong despite predictions of a recession, Wall Street Journal reported. 

High interest rates will make borrowing on new loans more expensive, putting things like renovations on hold for many owners of the aging U.S. housing stock, New York Times reported.

A popular way to finance renovations is through home equity and cash-out refinancing loans. Both allow homeowners to borrow against the equity in their homes. While skyrocketing home prices have given many homeowners more equity, interest rates for second mortgages are typically higher than first mortgages. This would make financing home renovations impossible for many.

Stock and housing prices have remained resilient despite the rising higher interest rates. That’s happening despite some expectations that borrowing will remain more expensive for years to come, Axios reported. In January 2022, 30-year fixed-rate mortgages averaged 3.45 percent. In May 2023, that number was 6.43 percent. The average rate for new mortgages was about 7 percent on July 20, according to Freddie Mac.

However, predictions of an imminent recession are not going away, and not everyone thinks the fed will continue raising interest rates.

Jeffrey Sherman, chief investment officer of DoubleLine Capital, predicts the U.S. economy will go into a severe recession, forcing the Federal Reserve to cut interest rates by a whole percentage point at once.

“A multitude of economic indicators we look at are flashing either warning or recessionary signals,” Sherman told Bloomberg. “By the time they cut, it will be 100 basis points.”

Sherman pointed to the inverted yield curve as a reliable predictor of past recessions. Short-dated U.S. Treasuries are currently paying higher yields than long-dated ones, a signal that investors expect the Fed to cut rates in the next few years — something the central bank typically does during economic downturns.

“The bond market is telling the Fed that they’ve overtightened and they will have to cut rates,” Sherman said. He predicted that policymakers will be slow to act, and eventually opt to reduce rates by 100 basis points in one shot to pull the economy out of a downturn.