WASHINGTON (NewsNation) — Getting a car loan, a home loan and new credit card payments may all get pricier soon, as the Federal Reserve is expected to announce another three-quarter point rate hike. This would be the highest level it’s been in 14 years, and the fifth time rates have increased this year to try to taper off high inflation.
The Fed is expected to increase rates from around 2.5%, where they are now, and if it raises by three-quarters of a point, rates will be in a range of 3% to 3.25%. It is also expected to release quarterly forecasts for inflation, the economy and the future path of interest rates Wednesday at 2 p.m. EST.
Its steady rate increases are making it increasingly costly for consumers and businesses to borrow — for homes, autos and other purchases. And more hikes are almost surely coming. Fed officials are expected to signal Wednesday that their benchmark rate could reach as high as 4.5% by early next year.
So, why is the Federal Reserve doing this?
This is the one tool in the Fed’s toolbox to address inflation and to bring the prices of everything down. The economics behind this, in a nutshell, is that if interest rates increase Americans will stop spending, and if they stop spending demand for most items will fall.
When demand falls, generally, so do prices. Expectations for the Fed to raise rates increased in the past week after the August consumer price index report was released. The CPI rose 0.1% in August.
However, the Fed’s move could turn out to be a double-edged sword if it continues to increase interest rates. Many economists say they fear that a recession is inevitable in the coming months — and with it, job losses that could cause hardship for households already hurt worst by inflation.