Voice of the consumer: Can Fed stem risk of recession?

11 Call For Action lead investigator Katie Pelton.
11 Call For Action lead investigator Katie Pelton.(KKTV)
Published: Aug. 1, 2022 at 6:11 AM MDT
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Our 11 News Call For Action team pens a weekly column for our news partner The Gazette. Previous columns can be found here.

COLORADO SPRINGS, Colo. (KKTV) - The Federal Reserve last week imposed another big rate increase in an attempt to curb inflation. The Fed raised the benchmark interest rate by a hefty three-quarters of a point for the second time in a row. It’s the fourth rate hike since March.

The move is meant to slow the economy and keep prices in check. Right now, prices are at a 40-year high for just about everything.

This comes as the country battles with the highest inflation rate in decades at 9.1%. Federal Reserve Chairman Jerome Powell said the central bank understands how the rate increase will impact working families, but said the goal is to bring inflation down to 2% over the long run.

“The first thing I would say to every household is that we know that inflation is too high. We understand how painful it is, particularly for people who are living paycheck to paycheck and spend most of that paycheck on necessities, such as food and gas and heating their homes and clothing and things like that.

“We do understand that that those people suffer the most. Middle class and better-off people have some resources where they can absorb these things. But people, many people don’t have those resources,” Powell said. “It is our job, it is our institutional role. We are assigned uniquely and unconditionally the obligation of providing price stability to the American people.”

While there are fears of a possible looming recession, Powell said the U.S. is not in one. “It doesn’t seem that the U.S. economy is in recession right now. I think you do see weakening, some slowdown, let’s put it that way, in growth,” he said. “Demand is still strong, and the economy is still on track to continue to grow this year. But the slowdown in the second quarter is notable and we’re going to be watching that.”

KKTV 11 News talked to consumer experts about what this means for the housing market and for your wallet. Home sales are coming down after soaring over the past couple of years. Mortgage rates have climbed from 3% a year ago to over 5%, coupled along with inflation.

“So the Fed is raising interest rates in order to contain inflation. But, one harmful side effect is that it hurts the housing market,” said Lawrence Yun, chief economist for the National Association of Realtors. “It makes the borrowing costs to buy a home much more expensive and, consequently, we are seeing home sales decline if you were buyers. Consequently, home sellers need to be very realistic to today’s changing market circumstance.”

Meanwhile, University of Colorado Colorado Springs economics professor Joe Craig told us he expects the Fed to continue to raise rates.

“This might be a little bit more of a harsh landing. The Fed was hoping to have a soft landing, we knew we were going to see high inflation rates, inflation coming out of COVID,” Craig said. “We had very loose monetary policies ... a lot of low interest rates trying to boost the economy, and gave everyone checks.

“We knew this was going to happen, but we were hoping we would probably be a little bit more ahead of it than we are right now.

“My feeling is we are going to see the Fed rate get up to at least 4% in the next three to six months. So I think we’ll see, I think you’ll be hitting me up again in another two months saying, ‘Joe, there’s another three-quarter-percent increase.’ I think that’s very likely.”

You can find out more information about the rate increase on our website, kktv.com.

Click here to read the original column on gazette.com.

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