Federal Reserve Increases Interest Rates in an Effort to Combat High Inflation

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Interest rates are on the rise. In an effort to combat high inflation, the Federal Reserve raised interest rates by three-quarters of a percentage point.

“The Federal Reserve is trying to hang on to the shirt-tails of consumers and saying ‘please, don’t spend so much,’” said University of New Haven Department Chair of Accounting, Finance and Marketing, Leah Hartman.

To that end, on Wednesday, the Fed declared a rate hike for the fourth time this year in order to combat high inflation. Hartman said the Federal Reserve is trying to slow demand by consumers and businesses, but that it’s not an exact science.

“If they go too far, the businesses cut back too far and we face a recession. And that’s a real fear,” Hartman said.

For now, Hartman said employment data remains strong. And the Fed chair made a point to say he doesn’t think the U.S. is in a recession and that there are signs the rate increases are working.

Since the June report of a 9.1% inflation, Hartman said the high gas prices pushing that rate up have also gone down.

“Inflation is softening. I think the next six months are going to be rough. Rough in terms of data because that drives volatility. Consumer confidence was down three months in a row with the report yesterday. People are nervous about the economy,” Hartman said.

When it comes to big purchases like mortgages for homes, Hartman said the rising interest rates mean it’ll cost more. And people with variable interest rates for credit cards or personal loans will see higher rates, too.

On Thursday, we’ll find out the second-quarter GDP estimate which is an indicator of the country’s economic health. Hartman said GDP could be affected by companies that overstocked inventory early for back-to-school sales because it means less production in that quarter. But it can also be an opportunity for families looking to save.

“The retailers are saying they overstocked that inventory. I think it could be a really nice relief to families as they start to shop for back-to-school clothing and supplies for their students,” Hartman said.

Hartman said the expectation is that we’ll see another interest rate hike in September when the Fed meets again. How much of a hike depends on the data that comes out between now and then.

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