The U.S. Federal Reserve unanimously voted to raise interest rates by a quarter of a percentage point Tuesday, from 3.75% to 4%.
That's going to impact Americans with any kind of debt — so your minimum payment on credit cards, personal and small business loans will go up. It also means it will be more expensive to buy a house or car.
Federal Reserve chair Kevin Warsh explained the decision to raise interest rates at a press conference yesterday.
"The least well-off are the ones who have the most to gain from stable prices," Warsh said. "The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices."
"Some months ago, I said we will deliver stable prices," he continued. "[Tuesday's] action is consistent with that."
Dean Stansel, research associate professor with the Bridwell Institute for Economic Freedom at the SMU Cox School of Business, joined NTX Now host Ron Corning and managing producer Bekah Morr to help explain what this means for consumers.
These interview highlights have been edited for length and clarity. To hear the conversation in full, click the 'listen' button above.
Stansel explained that inflation has been above the Fed's 2% target for at least five years now. That's partly due to the ongoing Iran War.
"Gas prices alone are up nearly 50% since the start of the Iran War," he said. "Those gas costs, of course, hit us at the pump when we fill our tank, but they also hit us on everything we buy because the cost of transporting things."
The Fed's goal in raising interest rates is to try to bring those costs down.
"Their mission is to maintain stable prices and promote maximum employment," Stansel said. "The economy is doing okay, so we can tolerate more easily the negative impact of these higher interest rates."
Stansel says an interest rate hike will lead consumers to cut back on their spending as they put more money toward their debts, and he says any cutback in consumption is going to lead to a slowdown in economic growth. But he said that could have been easily avoided.
"The thing here that I think often gets missed is that there are numerous misguided government policies that are driving the inflation that the Fed is trying to fight," he said. "For example, tariffs, the war in Iran, mass deportation of immigrants, increased efforts to reduce immigration, and overspending in Washington. If it weren't for these bad policies that we could change then this rate increase likely would not have been necessary."
Ron Corning is a co-hosts of KERA's NTX Now. Got a tip? Email Ron at rcorning@kera.org.
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