What a Fed rate hike means for your wallet

ATLANTA, Ga. (CBS46) - The Federal Reserve is hiking interest rates for the fifth time since March. The three-quarters of a point increase pushes the Fed’s benchmark rate to its highest point since early 2008.

“The Fed has got to raise interest rates to choke off demand somewhere else in the economy. Inflation means demand is greater than supply and prices rise as a result of it,” said Raymond Hill, a professor at Emory University’s Business School.

The central bank’s action comes a week after a government report that showed high costs spreading more broadly through the economy. The Fed hopes this move will counter skyrocketing inflation. Basically, it wants to make it harder for Americans to spend money. That will, in turn, lower demand and drop prices of everyday items at the grocery store.

Vonda Moore of Atlanta welcomes any relief.

“I noticed that my basket was a whole lot lighter, but the cost is higher,” said Vonda Moore. “I just bought $50 worth of dog treats. It’s just this one small bag. So, everything is going up.”

While prices at the grocery store have the potential to drop, on the flip side, the Fed’s rate hike makes it more expensive for businesses and everyday consumers to borrow. Mortgage rates and car loans could be harder to come by. Many economists worry this latest rate hike will heighten the risk of an eventual recession, which could then lead to job losses.

Stocks took a hit shortly after the Fed’s announcement. Marcel Roman of Atlanta is closely watching his 401K and other investments.

“A recession will have an impact on that, on your plans to retire, and all the stuff. So of course, I worry about it,” said Roman.

More pain is likely on the way. Professor Hill says the Fed’s latest rate hike likely won’t be enough to slow the economy.

“It means the federal funds rate is going to be at about three and a quarter. We are in an eight-percent inflation environment. The Fed funds rate are still going to be negative in real terms. So, it will have very little effect on slowing inflation in my view and I think that’s shared by some economists as well. We’re going to have to see further increases in the interest rate to really matter,” said Hill.

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