Federal Reserve officials raised interest rates to 5.5% this week. Their thinking: By making it more expensive for consumers and businesses to borrow money, it hopes to reduce overall economic activity — too much of which tends to cause inflation.
Hamrick calls the higher interest rates"medicine" designed to target inflation. He acknowledged that not everyone, including central bankers, understand exactly how the higher rates work their way through the economy because those costs can manifest in many different ways, but there remains"a high degree of confidence" that the higher rates do help reduce inflation.
"That is an unfortunate fact," said Derek Tang, an economist, co-founder and CEO at Monetary Policy Analytics/LHMeyer, a Washington, D.C., research firm. "On a human level, that hurts the poorest the hardest, because they already have less savings to draw on, because they're also facing higher inflation and have to spend more on essentials like food, housing and gasoline," Tang said."So really, there are no easy answers here."
"The inflation rate is not low enough, not yet at the target the Fed wants it to be," Tang said."It needs to be confident it will be at that level in the future."
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