Federal Reserve implements highest interest rate hike in 3 decades: What this means for you
COLORADO SPRINGS, Colo. (KKTV) - The Federal Reserve raised the key interest rate by three-quarters of a percentage point on Wednesday, with officials saying this is the largest hike in nearly three decades. This comes one month after the Federal Reserve increased the inflation rate a half percentage point on May 5, 2022. Click here to read more on Wednesday’s decision.
11 News spoke to Joe Craig, who is the Department of Economics Chair at the University of Colorado Colorado Springs (UCCS), about what this means for consumers.
“It means a couple things, the first thing it means is that they’re still concerned about inflation. So generally when they’re raising interest rates they’re trying to reduce the money supply, which generally slows down inflation,” says Craig. " The easiest way to think about it is if the interest rate goes up everyone is less likely to buy a house, everyone’s less likely to buy a new car, and everyone’s less likely to spend a little bit more money.”
An analyst for CBS News says if interest rates raise too much or too quickly we run the risk of slowing things down so much that we tip into a recession. Craig tells 11 News this whole process is a delicate balance and something some economists were expecting, but inflation is not a bad thing.
As we are in the summer months and coming out of a pandemic, Craig says interest rates typically go up when people start to spend less, but that is the opposite of what is happening now. “The fact that we’re going into the summer and coming out of a pandemic, consumers tend to just be like I don’t care I’m going out in the world, I don’t care what the cost is,” says Craig. “The balancing act as you want people In the margin to do a little less. But you don’t want everyone to shut down. So the feds trying to get everyone to do a little bit less without getting them to stop again.”
If consumers did stop spending completely that would send us into a recession, which is what the Federal Reserve is trying to avoid.
For those who are trying to buy a home in the next few months, Craig says you might have to pay a higher interest-rate but you could be more likely to get the house you really want, and can refinance a little later down the line.
Breaking it down in easy terms, today’s inflation increase is, “probably like if you’re running on the treadmill and you got a little bit too fast and then you’re like ‘oh it’s a little too slow’ when you’re just trying to get the adjustment correct instead of crashing into the wall,” says Craig.
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