How to prepare for higher interest rates
INDIANAPOLIS (WISH) — For the ninth time since March 2022, the Federal Reserve is raising interest rates a quarter percent to 5%.
“Interest rates have very instantaneous effect on credit card interest, so if you are holding credit card debt right now it’s a good time to start paying that off,” said Michael Hicks, director of the Center for Economic Research at Ball State.
The Fed is trying to get consumers to spend less on big-ticket items like cars and homes while at the same time driving down inflation on necessities like food and clothing.
Indianapolis resident Brooke McMurray said, “I lucked out I bought my house in 2019 and I was able to re-finance in 2021 and it was just a blessing.”
The Federal Reserve has been pushing small, incremental increases in the interest rate for a year now, walking a tightrope between controlling inflation and sending the economy into a recession.
“At the same time we have the risk of bank defaults really pushing the economy into recession which is something the federal reserve would like to avoid,” Hicks said.
He adds that there is evidence the gradual increases are working, even though inflation remains high.
“Clearly there’s evidence that their tightening has slowed the economy, job openings are lower, home prices are down, home sales are down, manufacturing employment is down,” Hicks said.
McMurray doesn’t have much credit card debt and doesn’t anticipate making any big purchases, but she won’t escape the impact of this rate hike.
“I have my lease on my car coming up, so I’m probably going to get lumped in with a higher interest rate where things are right now,” she said.
The federal government estimates inflation is around 6%, its goal is to reduce it to 2%.