Tuesday, March 21

Will Americans break free of high interest rates?

To rein in inflation, there will be pain, Federal Reserve officials say.

Last week, the Fed boosted its short-term interest rate by three-quarters of a percentage point for the third time to help curb inflation, which continues to hover near a 40-year high.

The rate hikes “Will also bring some pain to households and businesses,” said Fed Chair Jerome Powell at a conference in August. “These are the unfortunate costs of reducing inflation.”

Inflation is indeed soaring. Americans are paring their diets, debating which bill to pay when, and lining up at food banks. But it is a bleak irony that those hit hardest by inflation — lower and moderate-income Americans may also be harmed most by the Fed’s actions to bring prices down.

‘Barely making it’Americans are getting creative to combat inflation’s devastating costs

“You’re immediately hurt by higher interest rates while the effect on inflation may take some time,” said Michael Weber, an associate professor of finance at the University of Chicago’s Booth School of Business. “Low and moderate-income Americans are indeed hit quite hard.”

Higher interest rates make it more expensive and difficult to buy a home at a time when the average rent has reached a record that may go higher as landlords pay more for properties and for loans to repair them. Americans will pay more interest on their credit card debt, even as they rely more on those cards to pay for food and other essentials.

And if the unemployment rate rises as Fed officials predict, millions may end up out of work.

So what to do in the meantime, as interest rates climb and inflation remains high? Can we do more to help lower and middle-income Americans seemingly caught in a financial Catch-22?


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