Federal Reserve raises interest rates by 0.25%
COLUMBIA, Mo. (KMIZ)
The cost of groceries, gas and rent has been steadily increasing, causing financial difficulties for lower-income Americans.
The Federal Reserve raised interest rates Wednesday by 0.25% to help tame that inflation.
This will be the Federal Reserve's first time raising interest rates since 2018 and it comes as the country continues to struggle with inflation and as the Russian invasion of Ukraine continues. In 2018 the fed raised interest rates to 2.25-2.5%.
The increase will make it more expensive to borrow money, from home loans to credit cards. The federal funds rate is now at 0.25-0.5%.
Joseph Haslag, an economics professor at the University of Missouri, says, "Everyone whose a borrower is going to see higher borrowing cost."
The move comes as inflation is growing at unprecedented rates. Over the past year, prices have increased by 7.9% causing the highest rate of inflation in 40 years.
"Partly to monetary policy that has been too loose for a while and the way to combat inflation is to tighten monetary policy," Haslag explained.
The higher borrowing cost for a loan for a car, home or on a credit card is meant to slow down inflation by decreasing the demand.
Haslag said, "The two rates they are going to raise is their target federal funds rate and the interest rate they pay on reserves."
The Federal Government wants inflation down to a comfortable level so inflation does not affect consumers' spending and also not cause a recession, but Haslag says a recession is not likely.
"The likely hood of a recession is less is way less than one percent."
Haslag thinks the Federal Reserve is making the right decision but it will be some time before the increase in rates has an impact on inflation.
"The feds action today start to cut the inflation rate, no. this stuff is kinda already baked in because of the supply chain concerns and the up-tick in energy prices that came about because of the outbreak of the war," Haslag says.
Financial experts say the 0.25% increase could lessen the chance of a recession and of hurting the stock market.
The Federal Reserve says it is expected to raise rates three times this year but it is now projected to make seven more hikes this year for short-term rates.
