Loan costs could change to reduce high prices, but economists fear it could make them worse
GETTING A LOAN COULD BE MORE EXPENSIVE
For months, the Federal Reserve, which monitors interest rates, has hinted that it might raise interest rates to help deal with rising costs. The group is expected to do just that on Wednesday.
“Most people are expecting a quarter percent increase, but it’s also possible it could be slightly higher,” said Jorge Barros, public finance researcher at the Baker Institute for Public Policy. Rice University.
SEE ALSO: Prices rise in the United States as inflation rises
This will impact any loans you take out or any credit card debt you incur.
“If you were ever concerned about buying a car due to the high price and difficulty in financing with APR and interest rates, you are going to experience this even more after (Wednesday),” explained Dietrich Von Biedenfeld, assistant professor at University of Houston-Downtown.
The rate change would be immediate, but experts say it could take a few days or even weeks to feel it.
RISE IN RATES COULD DROP PRICES AT THE GROCERY AND EVERYWHERE
The group may raise interest rates to try to cool spending, which is part of why prices are rising at their highest rate in 40 years.
“Theoretically, rising prices will reduce some demand and then slow down people’s desires and the overt extension of credit,” Von Biedenfeld explained.
SEE ALSO: Tips for managing your finances in times of inflation
If the cost of loans for items such as a vehicle or a house increases, it can reduce demand.
“People are going to cut their spending kind of,” Barro said.
If that works, economists said the government group could raise interest rates again later this year.
IT COULD GET WORSE BEFORE IT GETS BETTER
Although rising rates have had an impact on spending before, experts believe it could be different this time around. While property prices are higher, unemployment is not, which means people have money to spend.
“I think we’re really heading into uncharted territory,” Barro explained. “We see a lot of unusual things happening all at once.”
Some experts have said that consumer spending is not the problem. There are supply chain issues and government spending is historically high.
SEE ALSO: Another 40-year high: US inflation climbs 7.9% in past 12 months, biggest rise since 1982
“The intended result of raising interest against inflation is to put the brakes on. But in reality, we’re just taking our foot off the gas a bit and slowing some of that inflation,” Von Biedenfeld said.
This is why some economists fear that the situation will get worse before it gets better. People will be forced to pay higher loans and the prices of everything else will not come down.
EVEN WITH HIGHER RATES, IT CAN TAKE MONTHS BEFORE THE HIGHER RATES DROP
If the government group raises loan prices, experts believe you won’t see an immediate drop in high prices.
“We’re waiting at least a year or two before inflation rates stabilize. Whether that’s the result of monetary policy or if it’s something that happens on its own,” Barro said.
This means loans could be more expensive, and the prices you pay for items at the grocery store and gas station could still be high.
SEE ALSO: Even a wholesale supplier membership can’t help you escape higher prices
“It could take months, but if we continue with some of the spending policies and the inconsistencies at the government level, especially the federal government, it could stretch at least until 2023,” Von Biedenfeld explained. .
A hefty price tag that some Houstonians have said they can’t afford, which is why they’re hoping the rate hike will work.
“It affects me because I’m a struggling single mom,” Houston resident Priscilla Brown said. “I don’t just have to take care of (myself), I have to take care of my son. I have to take out some other stuff to pay to put gas in my car.”
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