The Federal Reserve is taking steps to slow down inflation, raising interest rates by half a percentage point, affecting credit card, car and home loans. This is the first time the central bank has hiked rates this much since 2000.
It's all in an effort to even out supply and demand in the U.S and curb rising inflation.
"They're trying to effectively raise the cost of borrowing," Western Michigan University Assistant Professor of Finance Dr. Matt Ross says. "What they're doing is they're selling treasury bonds to the banks. And so that takes money out of the banks, and makes the banks think twice, about lending out new money making new loans, and they typically have to then make their loans at a somewhat higher rate."
That means money is now more costly, and in turn, borrowing is less appealing. That affects the interest rates on homes, cars and credit cards.
"The Fed is actually trying to slow down the rate of increase the things we buy," Dr. Ross says.
He says it's all in an effort to encourage people to save money. If those big purchase items are more expensive, that could change peoples' spending habits. That would drive down demand for products while the supply catches up.
"That should slow down the rate of increase that we've seen in what [price] we're paying for things," Dr. Ross says.
"That ought to show or bring in some relief on inflation... hopefully without pushing us into a recession," Dr. Sean Goffnett, professor of marketing and logistics at Central Michigan University, says.
He says the Fed is walking a fine line right now, and this move's effect on inflation will take time.
"Hopefully we'll see some relief over the year and over the course of the year into next," Dr. Goffnett says. "Hopefully it's not prolonged. And again, ideally, hopefully, the Fed will be able to balance this the best they can and not erode the growth that we're seeing still seeing in our economy."
The central bank is expected to raise interest rates throughout the year to continue to cool down demand.
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