What a Fed rate hike means for your wallet

ATLANTA, Ga. (CBS46) — The Federal Reserve is raising interest rates for the fifth time since March. The three-quarter point increase pushes the Fed’s benchmark rate to its highest level since the start of 2008.

“The Fed needs to raise interest rates to stifle demand elsewhere in the economy. Inflation means that demand exceeds supply and prices rise accordingly,” said Raymond Hill, a professor at the Emory University Business School.

The central bank’s action comes a week after a government report showed that high costs are spreading more widely through the economy. The Fed hopes that this decision will counter soaring inflation. Basically, he wants to make it harder for Americans to spend money. This will in turn lead to lower demand and lower prices for everyday items at the grocery store.

Vonda Moore of Atlanta welcomes any relief.

“I noticed my basket was much lighter, but the cost is higher,” Vonda Moore said. “I just bought $50 worth of dog treats. It’s just this little bag. So everything goes up.

While grocery prices have the potential to fall, on the other hand, the Fed’s rate hike is making borrowing more expensive for businesses and ordinary consumers. Mortgage rates and car loans might be harder to come by. Many economists fear that this latest rate hike will increase the risk of a possible recession, which could then lead to job losses.

Stocks took a hit shortly after the Fed’s announcement. Atlanta’s Marcel Roman is keeping a close eye on his 401K and other investments.

“A recession will have an impact on that, on your retirement plans and everything else. So of course I care,” Roman said.

More pain is likely on the way. Professor Hill says the Fed’s latest rate hike is unlikely to be enough to slow the economy.

“That means the federal funds rate will be around three-quarters and a quarter. We are in an 8% inflation environment. The fed funds rate is still going to be negative in real terms. So it will have very little effect on slowing inflation in my opinion and I think that is also shared by some economists. We’re going to have to see more interest rate increases to really matter,” Hill said.

About Teresa G. Wilson

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