PORTLAND, Ore. (KOIN) – On Wednesday, the Federal Reserve announced it is hiking its key interest rate by three-quarters of a percentage point — taking aggressive action to slow down the white-hot economy and tame record inflation that is at its highest point in 40 years.
With Wednesday’s announcement, interest rates are now up 1.5% in 2022 alone. The hike is expected to make borrowers think twice before taking out home mortgage loans, car loans and credit cards.
The economist KOIN 6 News talked to said much of this goes back to pandemic stimulus checks.
“They waited and waited and waited and they didn’t spend the money they received from the government. But once the pandemic situation improved, people started spending a lot of money and that stimulate the economy very much,” University of Portland professor Hiro Ito said.
Ito said this is one reason the country is experiencing the fierce surge in inflation. Another factor is the global supply chain.
“Many companies are experiencing labor shortages, and also because the pandemic affected all the global economies the supply chains, global supply chains have been very much negatively affected,” Ito explained.
Professor Ito said while the move by the Fed is meant to balance the economy, it will not make things better for the average American anytime soon.
“The impact is not gonna be something we’ll see next week, or next month, it’s gonna take a few months and plus, we have some risks in the global economy as well,” Ito said.
Ito said it is unclear when Americans might see some relief at grocery stores and at the gas pump as the war between Ukraine and Russia plays a big role in food and gas prices.
“The Russian invasion situation has been negatively affecting energy and food markets. So, I think the bottom line here is that as long as the war situation continues, then we’ll have to keep facing higher pressure on the prices of the stuff that we buy,” Ito said.
However, there is a silver lining for Americans who are savers and investors – you will have a higher return on your investments.