(The Center Square) – The Federal Reserve this week hiked interest rates three-quarters of a point in an effort to tame inflation, but one expert believes history is not on the Fed’s side.
The Fed has been boosting borrowing costs at the fastest pace in decades, but so far its actions have done little to curb the run-up in consumer prices.
By making it more expensive to buy a car, get a mortgage or use a credit card, the Fed hopes to damper consumer demand, which has been outpacing supply and pushing prices higher.
“You want to raise rates enough so it brings inflation down, but you don’t want to raise them too much where it could throw the economy into recession,” said Kevin Sylwester, an economics professor at Southern Illinois University. “Historically, it has been very tricky for the Federal Reserve to get it just right.”
The annual inflation rate in August was 8.3%, which is down slightly from July, but groceries, rent and utilities continue to climb.
Illinoisans are still paying a hefty price for gasoline. According to AAA, the average tank of gas will run motorists around $3.90 a gallon with the lowest price near Decatur at $3.49 a gallon. Cook County drivers are still feeling the pain with gas on average over $4.40 a gallon.
The rate increases could explode federal deficits in the years ahead. A new analysis from the Committee for a Responsible Federal Budget predicts this week’s rate hike alone will add $2.1 trillion to government deficits over the next decade.
Others believe a recession is inevitable. Sylwester said the nation may already be there but won’t know for sometime.
“These pronouncements are never made in real time,” said Sylwester. “They always look back, and they are usually many months and maybe even a year after a recession has deemed to have started.”
Federal Research Chairman Jerome Powell has conceded a recession is possible, particularly if the Fed has to keep tightening aggressively.
