The Federal Reserve implements another steep interest rate hike: what this means

Interest rate hikes are meant to get inflation under control.
Published: Sep. 23, 2022 at 8:56 PM EDT
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MARIETTA, Ohio (WTAP) - The Federal Reserve recently implemented another interest rate hike in an effort to combat inflation.

You’ve probably heard this headline before but what exactly does it mean?

WTAP talked to Marietta College’s Biz Bedane, an assistant professor of economics, to better understand how this all works.

Take a look around store shelves and the impact of inflation is obvious.

“..., all of us will be affected by rising prices. Specifically lower income people will be highly affected because of this,” Bedane said.

He explained that the Federal Reserve’s interest rate hikes are meant to bring demand down. This means higher mortgage rates, higher credit card interest rates, and more.

“That will affect consumers spending. That is the immediate effect,” he said.

The hope is that the hike makes demand go down, bringing prices down with it.

While we may feel the immediate impact on our budget, the endgame goal is a gradual one. Bedane said we may see the light at the end of the tunnel closer to 2023 or 2024 than next month.

“It will be a painful way but there is no other option of controlling this because inflation is increasing over time,” he said.

Just like the last couple years haven’t looked anything like normal, neither have recent interest rate hikes.

“So the last two…three fed increases the interest rate by 0.75 percentage points so that is, relative to the past, a huge hike,” Bedane said.

When looking at the inflation that brought on these hikes, he points to the Russia Ukraine war, Covid, and global supply chain issues.