Fed Raises Rates in Attempt to Cool Inflation

(KNSI) – The Federal Reserve raised interest rates 0.25% Wednesday for the first time since 2018 and signaled more rate increases are in the future. The move will immediately send financing costs higher for many forms of consumer borrowing and credit.

King Banaian, professor of economics and Dean of the School of Public Affairs at St. Cloud State University says there can be some positive results from a rate increase. “Inflation needs to be lower than it is right now, the Fed has said its goal is two percent,” said Banaian. “Inflation is an increase in prices generally. And if you want to get control over general prices, particularly prices of goods and services, this is an action that I think is needed, and that people should probably celebrate. It’ll make the cost of things not lower, but lower than they would be if the Fed didn’t act.”

During the press conference, the Fed announced a plan to meet six more times in 2022, with a possibility of a rate increase each time. The change in plans is an acknowledgment of the uncertainty of the economy after recent events in Ukraine and the impact it has on the price of raw materials.

Banaian states the small increases will reward families for saving as opposed to spending. “There’s a desire, I think, to have both households and businesses pull back a little on their on their economic activity on their spending behavior,” he said. “And the Fed is trying to encourage just a little cooling in the system right now”.

___