ISU Economist Assesses Fed Interest Rate Hike

INFLATION word on calculator in idea for FED consider interest rate hike, world economics and inflation control, US dollar inflation

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AMES, Iowa -- The Federal Reserve's .75 percent interest rate increase Wednesday is likely to cost you money.

"All forms of borrowing costs are going to be increasing. The interest rates you're charged on everything from mortgages to your monthly credit card bill are going to rise," says Iowa State University Economist Peter Orazem.

He says two recent interest rate hikes by the Federal Reserve--including Wednesday's--are overdue.

"Their initial thought was that the inflation from the pandemic would be short-lived, and so they really didn't change their monetary policy--they were more concerned with maintaining a lot of liquidity in the economy to try and fight the recession that turned out not to be that severe," Orazem says.

He also says this week's rate hike is not likely to be the last one this year.

"If you look at the current rate of inflation with the current interest rates--they're still in the negative range, which is what we would normally think of as very expansionary monetary policy. It's hard for me to believe they're not going to have to push interest rates up even higher," Orazem says.

Wednesday's .75 percent interest rate hike is the largest since 1994.

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