In an attempt to fight back against high inflation, the Federal Reserve substantially raised interest rates, which means higher rates for many consumer and business loans. Sean Leonard, chief investment officer at Graypoint, told Capital Tonight that these rate levels haven’t been seen since the early 2000s. Leonard adds the higher rates could cost lower wage earners that are homeowners or who have credit card debt the most.
Inflation has hit the American wallet hard with the prices of everything from food to cars rising and forced Americans to cut back to make ends meet. According to Leonard, the cost to buy a house is nearly 70 to 80% higher than it was in early 2021 thanks to higher interest rates and the housing boom.
The Federal Reserve’s hope is that by raising these interest rates, consumers and businesses would borrow and spend less, which would slow the rate of growth in the economy and cool down inflation rates. Currently, there are more jobs open than people looking for them, which has left companies to increase benefits to attract more employees and pass that added cost on to consumers. Leonard said that slowing the rate of growth in the economy temporarily could allow the labor force to catch up to the rate of employment in the country.
There is concern among economists that the rising interest rates could lead to layoffs as the cost of doing business goes up. Federal Reserve Chair Jerome Powell said at a press conference on Wednesday that “no one knows whether this process will lead to a recession, or if so, how significant that recession would be," and added "that’s going to depend on how quickly we bring down inflation.”
Leonard argues that recessions can be minor and not be as harmful as previous crashes like the 2008 financial crisis known as “the Great Recession.”