The Federal Reserve plans to hike up interest rates next month to help the nation’s worst inflation in 40 years partially due to the pandemic.
Despite the conflict in Ukraine, the Federal Reserve isn’t budging on its decision to raise interest rates in March and it's predicted they'll continue that trend through 2023.
Russia’s invasion of Ukraine could cut off international supplies of wheat when food supply issues have costs at the grocery store increasing rapidly.
A local economics professor at UCCS offered insight into if he thinks the turmoil in Ukraine will have an impact on how much the Federal Reserve will increase rates.
“The conflict in Ukraine will alter the Federal Reserve’s policy stance. They will continue to raise rates, but it may influence their decision by how much they will raise rates,” said Edward Hoang, Ph.D., Associate Professor, Department of Economics, UCCS.
Professor Hoang says supply issues contributed to today’s inflation, but that’s not all.
He says a big part of it was the shift from services to goods, like people needing to make big purchases like computers to work from home.
During the pandemic, households were building up savings and the personal savings rate was high. He says that has changed.
“Consumer debt has increased and so households built up these savings. They were looking for ways to spend it. They spent it on goods and services and when the savings were depleted, they went to their credit cards. And so, by raising interest rates, it will make the cost of borrowing expensive,” said Hoang.
The new rate could influence the rate of car loans, mortgages, and credit cards. Since borrowing a loan will be more expensive, consumers may think twice before taking out a loan.
The Federal Reserve plans on raising interest rates during their next meeting on March 16. It has yet to be determined if the Federal Reserve will raise rates by a quarter of a percent or by half a percent.
