News and HeadlinesIndianapolis Local News


Federal Reserve raises interest rates again, economists say rate hikes are working to fight inflation

Interest Rates.png
Posted at 9:41 PM, May 04, 2023
and last updated 2023-05-04 21:41:04-04

INDIANAPOLIS — The Federal Reserve has raised interest rates yet again as it continues to fight inflation.

Economists say the increases are working and could help home buyers in in the long run.

This time, the rate hike is 0.25%.

“Home prices are receding even though demand is high,” Mike Hicks, Economics professor at Ball State University, said.

That high demand is something Miguel Dominguez is familiar with. He and his wife bought a home a few months ago. He says the process was complicated.

“You had to act really quick,” Dominguez said. “From one day to another, the interest rates would go from around 4.5% to 5% then almost 6%. By the time it hit 6%, we found the right home. If not, we started to think maybe we need to wait and think about what our options are.”

As of today, the interest rate stands at 5.5%.

“It did put us on the clock and on a timer,” Dominguez said.

The reason the Federal Reserve has continued to increase rates is because they were trying to cool the housing market. Economists say this tactic is working.

“For the most part, particularly in the last few months, we’ve seen wage increases keep pace with inflation,” Hicks said. “There are periods of time when wage increases were exceeding inflation. During the highest periods of inflation, that was not the case. The area that we have seen the biggest jump in wages have been at the bottom are those jobs that were %14 to $15 an hour two summers ago but are now $16 to $18 an hour.”

If you are looking to buy a home, it may seem like a bad time. However, financial advisors say it’s important to keep in mind that interest rates are always changing.

“You are dating your rate, but you are marrying your home,” Alexander Joyce, CEO and President of Rejoyce Financial, said.

That's why it's important to make sure you’re getting the most out of your money.

"I think we are going to see some rate hikes to come,” Joyce said. “I think that we need to be again focused on how we are going to use our money to get what we want, and we must be prudent and wise on how to get there."

While it seems like your money isn’t going as far as it used to, economists say the price of goods and services are staying stagnant and not increasing as much as they were during the peak of inflation.

Hicks says the interest rate hikes take time to make a real impact.

“It takes as long as 18 to 36 months for the full effect of a rate increase to be felt, so those three-quarter rate increases last summer are still going to be felt into fall of this year. This rate increase will continue to be felt as late as next summer,” Hicks said.

Hicks said it’s unlikely we will enter a recession. If there is one, it’s likely to be small.

Since the labor market is tight, Hicks says mass layoffs are also unlikely.