What Does the Interest Rate Hike Mean for NJ Consumers?
Looking to put the brakes on inflation the Federal Reserve has announced a quarter-point hike in its key rate, with several additional increases to follow.
According to Rutgers University economist James Hughes, this begins a process that could have a profound impact on Garden State residents in the months to follow.
He said the quarter-point hike is a very modest increase but the Fed has indicated six more increases will be coming before the end of the year.
“They’ve confirmed that they are on a trajectory of rising interest rates and that inflation is a much bigger problem than they anticipated four or five months ago,” he said.
A delayed reaction
He said the impact of this rate hike probably won’t be noticed for months, but as more increases take hold it will definitely impact Jersey residents.
He said it will mean decreased consumer spending and probably increased unemployment.
Hughes said increasing interest rates will eventually push costs higher for many different businesses, and that could put a damper on hiring. But it will also lead to an increase in interest rates on savings accounts, which will benefit savers.
Money will cost more money
He also noted as interest rates rise, “that’s eventually going to translate into higher borrowing costs, whether it’s credit card interest rates, they’re going up. Home mortgage rates will eventually go up, and that could cool the New Jersey housing market.”
He said it will also create higher levels of uncertainty.
Hughes pointed out a number of factors are now contributing to the spike in inflation, including the Russian invasion of Ukraine, which is pushing energy prices higher, and new COVID lockdowns in Asia which is compounding an already bad supply chain disruption crisis leading to shortages of different products, probably for the next several months.
He noted another problem adding to the current inflationary cycle is the ongoing labor shortage in the U.S., which will push prices even higher if we continue to see higher demand for manufacturing of essential goods in this country instead of relying on cheaper labor in other countries.