PHILADELPHIA (KYW Newsradio) — The Federal Reserve increased interest rates a quarter of a percent on Wednesday, their first rate hike since 2023.
The board of governors voted unanimously on an incremental increase, much to the chagrin of President Donald Trump.
It’s a move meant to cool down spending and slow the economy, but it’s a maneuver that drew ire from Trump, who called for the Fed to lower interest rates.
The quarter-point increase lifts the Fed’s key rate to about 3.9% and, over time, could result in higher borrowing costs for mortgages, auto loans and credit cards.
It wasn’t a surprise to economics experts, as inflation has been stubborn and remained far above the committee’s goal of 2%.
Itay Goldstein, a professor of finance at the Wharton School of Business, said the Fed constantly deals with a tradeoff. “When you’re increasing rates, you’re contributing to the decrease in inflation,” he explained, “but, at the same time, you are weakening the economic activity and this may increase unemployment.”
The move comes as Americans are already struggling with high costs for groceries, gas and housing. Affordability has taken on a leading role in the upcoming midterm elections, just seven weeks away.
“For people with mortgages, this will make your monthly bill to pay back your house larger,” said Marco Airaudo, an economics professor at Drexel University. “If you rely a lot on credit cards to make purchases, and then you maybe plan to repay your credit card debt later on in life, there might be some repercussions.”
Goldstein doesn’t believe these incremental hikes will cease. “I think the general expectation is that this is not the last rate hike in this cycle. There is wide anticipation that there will be at least one more coming up, probably in the next meeting,” he said.
In fact, in a set of quarterly projections, the Fed signaled the Federal Open Market Committee, which sets rates, could raise it a second time to 4.1%.
