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Ball State economist explains how higher interest rate will help lower inflation

INDIANAPOLIS (WISH) — The Federal Reserve on Wednesday raised the interest rate by a half-percentage point.

The announcement comes as the United States works to get a handle on the worst inflation the country has seen in 40 years.

Ball State economist Michael Hicks said the burden will fall on borrowers. “We’ll see consumers spending less in any instrument they have to borrow in, and the intent in that is to dampen inflation before it really runs away for multiple years,” Hicks said.

He explained that making it more expensive to borrow money will slow the economy down, and hopefully push prices back to what people are use to.

In the meantime, Hicks said anyone with credit card debt, a mortgage, or loans will have to pay a little more.

“It will take several months, maybe double digit months, maybe a year or two for inflation to get back down to their target, 2 to 2.5 percent. What they have done with this big increase this month is to tell everyone look we’re serious about this, we’re gonna get a handle on this,” said Hicks.

Hicks said now is a good time to take a look at your finances. He suggests trying to pay off credit card debt or canceling subscriptions you no longer use.

He said you might also want to consider renegotiating your current mortgage.

While the half percentage point rise may feel shocking for some families, Hicks believes the worst days are behind us.

“We’re still talking about inflation and borrowing cost that are far lower than earlier generations experienced. This is not welcomed, but it’s certainly not the crisis that the inflation rate per month or two that looks like the early 1980s. We saw it sustain levels like this for six, eight and 10 years running, and we’re not anywhere near that way right now,” Hicks said.

Hicks said most economists believe we will start to notice a change in inflation in the coming months. He said he expects to see a big drop from March to May.