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Federal Reserve raises interest rates to combat inflation

Federal Reserve Building Fed
Posted at 5:31 PM, Mar 16, 2022
and last updated 2022-03-16 19:44:30-04

CORPUS CHRISTI, Texas — On Wednesday, the Federal Reserve raised short-term interest rates for the first time since 2018.

“High interest rates are going to hurt Corpus Christi a lot more so than the rest of the country because our economy is still very fragile,” Jim Lee said, economics professor at Texas A&M University - Corpus Christi.

Policymakers with the Federal Open Market Committee (FOMC) have raised benchmark interest rates a quarter percentage point, or 25 basis points. FOMC said there will possibly be six more interest rate increases this year. By the end of the year, the interest rate will likely be near 2%.

Lee said this interest rate primarily is for banks and their short-term borrowing. However, a rise could also raise long-term lending interest rates. That could mean you'll see an effect on mortgage rates, auto loans or credit card interest.

Lee called this the beginning of a tight money cycle. Higher borrowing is done to decrease demand that keeps raising prices.

“The Feds intention to raising this rate is to calm down inflation," said Lee. "And we are talking about runaway inflation that we are seeing right now. Everything are jumping at the highest rates that we have ever seen, at least in this generation.”

He said there is another way to combat inflation and that is to increase supply.

Lee said unfortunately that's not possible right now. The country still faces supply chain issues. The Russian invasion of Ukraine adds another level of uncertainty.

Businesses will be forced to slow down wage growth and possibly hiring practices.

There’s the unintended possibility of higher unemployment, which Lee said Corpus Christi is more susceptible to.

“I know this is hard for everybody right now because we’re still talking about 6.6% unemployment in Corpus Christi," said Lee. "So, that’ll be something we should be concerned about.”

The Federal Reserve has a goal to bring the inflation rate down to 2 percent. Lee said that's a process that likely will take a few years. FOMC projections show the interest rate will likely be between 2.5% and 3% in 2024.

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