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Families face higher costs as interest rates climb to 16-year high

NewsFamilies face higher costs as interest rates climb to 16-year high

The Federal Reserve has raised its key federal funds rate to more than 5% in a move that means higher borrowing costs for households and businesses.

The 16-year high was reached following the tenth increase since March 2022 and the central bank has warned that the move is “likely to weigh on economic activity, hiring, and inflation”.

It added that the effect on households and businesses “remains uncertain”, although it said that job gains had been “robust” in recent months and the unemployment rate remained low.

The decision comes at a time when high prices, high interest rates and slowing growth would all seem to spell an economic downturn.

Consumers are being squeezed between higher inflation and tighter credit conditions, while there is no more pandemic financial assistance available.

READ MORE: Half of Americans say they are worse off than last year

However, NBC reports that financial commentators continue to disagree about how the Federal Reserve should be responding to economic conditions.

According to the CME Group, Wall Street traders were betting that the Fed would announce a 0.25% rate hike — but that now means it must cut rates at least twice before the end of the year.

However, Seema Shah, the chief global strategist at Principal Asset Management, said that with inflation still elevated and the broad economic picture still looking “fairly robust,” the Fed would be more likely than not to keep additional rate hikes on the table.

“Provided the economic data slows only gently and inflation remains elevated, and the banking sector volatility is fairly contained, we think a June hike is still possible,” she said.

“Indeed, we believe there is a higher risk of a rate hike in June than what the market is currently pricing in.”

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