Will the federal interest rate hike impact you?
WAUSAU, Wis. (WSAW) - The Federal Reserve raised interest rates by .75% last week to try to reduce inflation. It was the highest in 28 years and experts say it may not be the last this year.
The rate increase makes it more expensive to borrow money, so theoretically buying goes down and prices follow.
“Inevitably what happens almost every time the Fed does this is they push, push, push until something breaks,” said Silvertree Retirement Planning founder and Certified Financial Professional Jason Glisczynski.
A lot of consumer spending following the pandemic and rising stock prices is largely to blame for inflation. Higher interest rates are meant to curb the causes.
“So that slows down consumer spending and it also slows down corporate spending, because it’s going to cost the corporations more to borrow money to build infrastructure and things of that nature,” Glisczynski said.
Corporations are still looking for ways to expand without having to spend more, however, sometimes the solution makes the problem worse, at least in the short term.
“If there’s an increased cost to borrowing money to get these things, that is inevitably going to trickle down to the price that the consumer is charged for those goods. Raising the interest rates, while it can help with inflation from the standpoint of slowing the spending down it also can have the reverse effect of increasing the cost of goods sold,” Glisczynski said.
For people looking to make a bigger purchase like a home or car, the higher interest rates make it even more prohibitive.
“The cost of funds, you know we’re pushing close to six percent on a mortgage loan whereas just a couple of years ago we were down below three percent in some cases,” Glisczynski said.
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