Make Ends Meet: Inflation and rise of interest rates
LOUISVILLE, Ky. (WAVE) - Business closures, supply chain issues, job losses and higher production costs are all hitting American pockets hard. It’s a perfect storm creating the steepest increases in prices seen in 40 years.
As people slowly begin to turn the corner on the pandemic, families all over the country are still fighting the effects of what it has done to them financially. It is hard to take care of family when the price of everyday items is higher than they have been.
It’s also frustrating because it is something people really have no control over. However, the Federal Reserve is now stepping in to make a difference.
Nathan Hecht is the CEO and Founder of the car-leasing platform Rodo.
He has been watching the effects the pandemic has had on businesses like his and families in the U.S., and is now closely following what the Federal Reserve is planning to bring relief to an economy that has been turned upside down.
“The Feds are raising interest rates to stem the quick rise of inflation,” Hecht exclaimed. “I would rather take slightly higher interest rates today. It brings down the overall cost of the car rather than keep the high cost of the car as it is now with low interest rates.”
The Federal Reserve’s top priorities are conducting national monetary policy, supervising, and regulating banks, maintaining financial stability, and providing banking services.
In March of 2022, for the first time since 2018, the Federal Reserve raised the interest rates.
“The Feds only raised interest rates by 25 basis points, which is a quarter of 1%,” Hecht explained. “It is a tiny, tiny move. They will continue to raise interest rates approximately six or eight times over the coming year.”
As interest rates move up, the cost of borrowing becomes more expensive. Higher interest rates should bring lower everyday prices.
“One should offset the other,” Hecht stressed. “When it becomes just a tiny bit harder to borrow, there’s a little bit more money in the system. So it will bring the price of things that we buy down ever so slightly.”
Experts believe higher interest rates will help by slowing down the economy and changing the time value of money.
The time value of money is the concept that the same sum of money can have a different earning potential at different times.
“The dollar you have will get you a little bit more if inflation comes down a little bit,” Hecht said. “If inflation comes down the value of your money goes up.”
Hecht points out a few things you should do before the interest rates go too high.
- Pay down your credit card debt.
- Protect your invested cash.
- Buy a house or car sooner rather than later.
- Purchase any high-priced item now before the rates rise.
“Hopefully, the Feds still keep rates low enough that it doesn’t get prohibitively expensive to borrow money,” Hecht said.
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