Fed interest rate hike likely to have impact on working Americans

Portland, Ore. (KPTV) - With the Federal Reserve announcing it will raise its key interest rate, Oregonians can expect ripple effects that could impact them financially.

Typically, when rates increase, borrowing costs increase, which leads to fewer car and home sales.  At the same time, both consumer and business spending decrease, and companies are less likely to pursue expansion, which slows down wage growth.  All of this has the cumulative effect of essentially putting the brakes on the U.S. economy.

The incremental increase in interest rates is intended to produce a “soft landing” that doesn’t tip the economy toward a recession, but the impacts of the increase is likely to be felt by working Americans.

“The idea there is that if we see inflation, we see price increases, that will translate into higher wages.  And if we put a dampening on wages, that will stop the prices going up,” said Rohan Grey, a Law Professor and expert on monetary policy at Willamette University. “But the reality is anytime businesses are raising prices like that, there’s also the profit share as well as the labor share going into their costs. And we have not had at the federal level a macroeconomic policy that is oriented toward protecting workers’ gains while perhaps compressing that profit margin of businesses so that we can have strong growth without the inflation that erodes real people’s purchasing power.”

Grey believes a better solution to the problems associated with inflation would be to address the supply chain issues that have contributed to many of the higher prices, and that the government could offset the impact of higher prices by subsidizing other expenses, like cancelling student debt.

The Fed has managed a “soft landing” with interest rate hikes in the past, most recently in 1990, when it raised rates without increasing unemployment.

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