Tri-State economist explains federal interest rate hike

EVANSVILLE, Ind. (WFIE) – On Wednesday, Federal Reserve chairman Jerome Powell announced the federal interest rate would be raised by a quarter point.

It’s the latest in a series of increases, and the chairman indicated that it likely won’t be the last.

“We continue to anticipate that ongoing increases will be appropriate in order to attain a monetary policy that is sufficiently restrictive to return inflation to a rate of 2% at a time,” he said in a press conference.

For people borrowing money, that’s going to cost more in the long run than it had before the hike.

Old National Bank Chief Economist Matt Finn explained that people should understand the Fed’s motive.

“On the one hand, you look at it, and you say, “Gee, my loan just went up, credit card interest rate just went up… But on the other hand, they’re doing it to bring inflation down which benefits everybody, whether you borrow money or not,” he said.

This is the eighth time rates have risen since March of 2022.

Finn said by increasing the cost of borrowing, they hope to dissuade people from making a lot of purchases.

“You choose to run a higher credit card balance or a lower credit card balance,” he explained. “The Fed is wanting you to run a lower credit card balance.”

If people buy less because their credit cards or bank loans are more expensive, Finn said that should drive down demand for products, which would then drive down the price.

“All of us that earn a paycheck need to budget,” he said. “I don’t want to make it sound like it’s an everybody do your part sort of thing, but this is precisely what the Fed is looking to engineer. By increasing some of the costs for people, they’re hoping to bring down some of the costs for everybody.”

Finn said the good news is inflation has significantly decreased from its highest point, but there’s still some time to go before things even out.

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