The Federal Reserve is not changing its mind on its decision to raise interest rates in March

The Federal Reserve plans to raise interest rates next month to help the nation’s worst inflation in 40 years, in part because of the pandemic.

Despite the conflict in Ukraine, the Federal Reserve is not changing its mind on its decision to raise interest rates in March and it is expected to continue this trend until 2023.

Russia’s invasion of Ukraine could cut off the international supply of wheat when food supply problems rapidly increase costs at the grocery store.

A local economics professor at UCCS has offered to ask if he thinks the unrest in Ukraine will impact the rate hike by the Federal Reserve.

“The conflict in Ukraine will change the policy position of the Federal Reserve. They will continue to raise rates, but it may influence their decision depending on the degree of rate increase,” said Edward Hoang, Ph.D., associate professor, Department of Economics, UCCS.

Prof Hoang says supply problems have contributed to the current inflation, but that’s not all.

He says a big part of that was the shift from services to goods, like people needing to make big purchases like computers to work from home.

During the pandemic, households were building up savings and the personal savings rate was high. He says that has changed.

“Consumer debt has increased and so households have been building up this savings. They were looking for ways to spend it. They spent it on goods and services and when the savings ran out they went to their credit cards. And so by raising the interest rates, it will make the cost of borrowing expensive,” Hoang said.

The new rate could influence the rate of car loans, mortgages and credit cards. Since borrowing a loan will cost more, consumers may think twice before taking out a loan.

The Federal Reserve plans to raise interest rates at its next meeting on March 16. Whether the Federal Reserve will raise rates by a quarter percent or half a percent remains to be seen.

Comments are closed.