LEXINGTON, Ky. (LEX 18) — The Federal Reserve raised interest rates a quarter-percentage point. Dr. Mike Clark at the University of Kentucky says we must remember why this all began.
He says, "What we experienced as we came out of the pandemic is inflation really starting to accelerate and had gotten up significantly over the ideal range."
The ideal range is about two percentage points. Dr. Clark says this increase is a reflection of where inflation is.
Dr. Clark says, "It's still high and we're still seeing that there's a lot of, still a lot of demand for goods and services out there."
Over the last year, the Federal Reserve has raised interest rates multiple times to try to get inflation under control. This most recent hike comes after concerns around the banking system.
Quint Tatro, Joule Financial's managing director, says, "We're having the banking crisis that we're having right now in the U.S. as a direct result of the speed in which the Federal Reserve has raised interest rates."
Tatro says that as interest rates go up, bonds that many banks invest in have fallen. We saw that happen with Silicon Valley Bank earlier this month. So, what does this mean for banking customers?
He says, "If you're an individual and you have less than $250,000 on deposit, you are FDIC insured. You should have no concerns whatsoever."
But, businesses should strongly consider diversifying. Tatro says as this week's interest rate increased, consumers should be aware that borrowing for things like auto loans, mortgages, and credit cards will go up.
Tatro says, "So while we are fighting inflation and those input prices are coming down, the unintended consequence is borrowing costs and costs to anything in regards to finance is going up considerably to the point where people are getting squeezed on that end."
He says even for those in good financial positions, it might be time to make wise financial decisions and works to pay off debts and be conscious of the way you spend money.
