SIU professor discusses what the Federal Reserve interest hike means

An SIU professor weighs in on the Federal Reserve recently raising interest rates.
Published: May. 4, 2022 at 8:02 PM CDT
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CARBONDALE, Ill. (KFVS) -The Federal Reserve raised interest rates today by half a percentage point.

The reason: to scale back some of the economic support put in place due to the pandemic and to get a handle on inflation.

“I think the real concern people have is the interest paid on things like car loans and home loans,” said Scott Gilbert, economics professor at Southern Illinois University (SIU).

Gilbert tells me you will be paying more interest on things like credit cards, cars and home loans.

“If you are actually going to buy a home, that means you may be paying more per month and per every year with that higher interest rate. So, it’s going to become potentially more costly short term, in terms of when you’re having to pay interest,” said Gilbert.

But according to Gilbert, there is also a positive to the Federal Reserve’s key short-term rate raised from a range of 0.75% to 1%.

“If you want to earn interest on government bond or on your own savings account hopefully, we may see a little bit more interest earned on the other side,” said Gilbert.

As prices at the pump and store climb for many Americans, Gilbert says this interest hike is meant to curb inflation.

“If the federal reserve is right, that it’s interest rate hike is going to make it so those prices at the pump and in the stores are not going to be rising as much as before that itself could be a plus, there is a downside, it cools off the economy when they hit the brakes in the interest rate,” said Gilbert.

The downside says gilbert, higher unemployment, and less growth in the economy. But he believes this is a measured response to what’s happening in the world.

“Hopefully we can feel that the federal reserve is trying to do right by the American family and business,” said Gilbert.

The Federal reserve also announced that it will start reducing it’s $9 trillion balance sheet, made up mainly of Treasury and mortgage bonds. Reducing those holdings will have the effect of further raising borrowing costs throughout the economy.

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