BETTENDORF, Iowa — The Federal Reserve's interest rate hike on Sep. 21, 2022 is the highest seen since early 2008, raising the range to 3%-3.25%.
Financial experts in Bettendorf explained that when the Fed increases the interest rate, banks and credit unions pay more to borrow money.
"By raising interest rates, it the objective is to make things more expensive - unfortunately - to bring down the cost of inflation," True Financial Partners advisor Drue Kampmann said. "So borrowing costs go up for not only a consumer, but also the business owners."
By doing this, major expenses could see a rise.
"It's going to have impact on adjustable mortgage rates, if you have a credit card you're going to see that in your statement, and it's going to have an impact on borrowing money for automobiles," Kampmann added.
Money advisors said by doing this, the Fed hopes to cut how much people spend which could slow down inflation.
In the long-term, prices across the board could improve; however, that comes with short-term issues.
"One of the negative side effects could be layoffs, people losing their jobs," Consumer Credit of the Quad Cities advisor Brian Delaney said. "We're already seeing layoffs in a lot of areas. For example locally - the Amazon warehouse we were supposed to have - it's been postponed a couple of years. And that's because Amazon's demand has gone down."
But this could be just the beginning: the Federal Reserve expects more hikes by the end of this year, with interest rates possibly hitting 4.6%.
Both experts weighed in on how people can protect their money.
"Now, if you can't wait, you can't wait - but I think it's a good idea to be conservative," Delaney said. "Spend where you have to spend, but slow down where you can afford to slow down. Don't incur debt you don't need because again, it's gonna get more and more expensive."
"Anytime the Federal Reserve raises interest rates, banks respond by also increasing the amount of money that you earn in the bank," Kampmann said. "For example it'd be savings accounts, checking accounts, money market, CDs, treasuries - all these things are going to pay a higher interest rate because the Federal Reserve is raising interest rates."
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