Instead of a blog post today, I wanted to share this article with my readers. Many people don’t know the ins and outs of a federal rate hike. Hope this helps!
Samantha Masunaga, Somesh Jha, Andrew Khouri
Los Angeles Times
(TNS) – Consumers are already paying more for gas, groceries and everyday items, but they should expect to fork over more in other parts of their lives after Wednesday’s interest rate increase.
The Federal Reserve’s move to rein in inflation will affect home mortgage loans, credit card borrowing, car loans, labor market stability and overall consumption. The goal is to reduce the amount of money supply in the economy.
“Too much money makes the money less valuable,” said Larry Harris, professor of finance at the USC Marshall School of Business and former chief economist at the U.S. Securities and Exchange Commission. “To control inflation, the Fed has to stop creating so much money. And when it stops creating money, interest rates tend to rise.”
Though the Fed doesn’t set the interest rates consumers pay on their credit cards, mortgages or personal loans, it controls the federal funds rate, which is the basic rate at which banks borrow and lend from each other. When that moves, so do consumer interest rates.