NewsNational News


Interest rate goes up to highest level in 14 years as Fed attempts to slow inflation

Federal Reserve Building Fed
Posted at 11:10 AM, Sep 21, 2022
and last updated 2022-09-21 21:55:19-04

The Federal Reserve announced Wednesday that interest rates will go up .75 of a point as part of the board's effort to slow inflation. The increase marks the highest interest rates have been since 2008.

The higher interest rates make borrowing for items such as homes and cars more expensive.

"There are some who believe that this is a double-edged sword, and that this could potentially flip us over the edge into recession," said ASU supply chain professor, Hitendra Chaturvedi.

In the short term he says people will pay more borrowing money for things like cars or small business, and interest will go up on credit card balance.

"My strong recommendation to them is pay off your credit card debts as soon as possible, even if you want to transfer to a 0% balance transfer," Chaturvedi said.

The Fed Board voted unanimously to raise interest rates.

"Recent indicators point to modest growth in spending and production," the Fed said. "Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures. Russia's war against Ukraine is causing tremendous human and economic hardship. The war and related events are creating additional upward pressure on inflation and are weighing on global economic activity. The Committee is highly attentive to inflation risks."

The risk of raising interest rates, experts say, is that it could cause the U.S. to slip into a recession.

"All the experts are telling us this is not a bubble, this is not a crisis, and it is still a slow adjustment," Sindy Ready, treasurer of the Arizona Association of Realtors said.

As for the Valley housing market Ready says it's no time to panic.

She says overall inventory of houses is still low sitting at around $20,000 homes compared to a normal $35,000, but recent rate hikes have lowered prices some.

"Prices have gone down a slight bit, but not a great amount, just a few percentage points," Ready said.

"From the seller perspective it’s taking a little bit longer to sell a home, but from a buyer perspective there's more choices," she said.

The effective federal interest rate is now over 3% for the first time since January 2008. Interest rates peaked at 5.25% in late 2006 and early 2007, roughly a year before the U.S. went into a recession.

From 2009 through the middle of 2017, interest rates remained below 1% before reaching a peak of around 2.42% in 2019.

In response to the pandemic, the Fed lowered rates nearly to 0 until early this year. But with the highest inflation in over four decades, the Fed has responded with a rapid succession of rate hikes.