Nebraska economist says likely Fed interest rate hike may not be enough

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(Omaha, NE) – The Federal Reserve is expected to raise interest rates this afternoon to help slow rising prices. According to Ernie Goss, an economist at Creighton University, the increase in the federal funds rate will affect some other interest rates, but not all.

“It will change the prime interest rate, so some loans will go up a quarter of a percent, but it won’t affect mortgage rates.” said Goss.

He tells KFAB Radio News that mortgage rates are more affected by long-term factors like the yield on federal Treasury bonds.

It would be the first quarter-point increase in the federal funds rate in three years, but bankers believe there will be more interest rate hikes this year.

“They expect another 1.0 to 1.25% during 2022.”

The economic theory is that by raising interest rates, consumers will buy less, and the laws of supply and demand will come into play and help contain rising prices.

“It’s all about inflation,” Goss told KFAB News. “But the Fed is caught between a rock and a hard place. Interest rates are rising, so they have to raise interest rates, but at the same time it will slow growth further.”

And Goss says that could lead to stagflation.

“The S-word may become relevant in the coming months as growth nears zero, so you’re talking about (more) rate hikes at the same time as the economy slows.”

Economists believe that stagflation can lead to higher unemployment and lower consumer purchasing power.

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