HARTFORD, Conn. — The Federal Reserve raised its interest rate by .75% Wednesday. It did the same in June. It's the fourth hike since March with the hope of slowing the economy and inflation.
"We have an inflation problem. It’s been about a year, a little more than a year actually," Finance Professor Osman Kilic with Quinnipiac University said. "They increase the interest rate meaning the cost of money is going up so that demand, aggregate demand for goods or services, can decline."
By increasing the cost to borrow money, fewer people are likely to do so. In turn, it should slow inflation. However, the professor said too slow of growth could lead to a recession. He recommends people spend less and save more during the slow growth period.
Naveen Kumar, like many across Connecticut, is walking away with fewer items in the grocery cart than before.
"I used to get like 12 to 30 items in Walmart for $100. Now it’s like eight to nine," the Hartford resident said.
He said the increased interest rate delays his search for a new car. He recently moved to the state. As to when he sees himself buying one, he said it may not be until next year.
"This is not the right time to buy a car because of the interest rates," he said.
This will have a direct impact on many across the state. If borrowing money for an auto loan or mortgage, is not locked in at a fixed rate, those rates will be impacted. Those with credit card bills will be impacted.
The professor said high inflation lessens the value of the dollar. When interest rates go up, the purchasing power of money goes up and demand will decrease.
Kilic said this may not be the last time the Federal Reserve hikes the interest rate. He said it will be determined by economic growth and employment rates. For now, the impacts from this may not be felt at checkout for a while.
"It should take about six months, six to nine months that you start to see it," he said.
The interest rate reached 9.1% in June which was a record high since 1981.
RELATED: Connecticut food banks face inflation challenges while trying to keep up with increased demand
While higher interest rates have a negative impact on those with loans, there's a positive impact for those with money in the bank as that interest payment rate increases too. However, the professor said no one is a winner with inflation as it's not going to make a huge difference.
"Some banks pay 1.5, 1.7% interest, inflation is 9%," he said.
Kilic said this decision by the Fed isn't good nor bad, but necessary.
Tony Black is a multi-media journalist at FOX61 News. He can be reached at tblack@fox61.com. Follow him on Facebook, Twitter and Instagram.
---
Have a story idea or something on your mind you want to share? We want to hear from you! Email us at newstips@fox61.com
----
HERE ARE MORE WAYS TO GET FOX61 NEWS
Download the FOX61 News APP
iTunes: Click here to download
Google Play: Click here to download
Stream Live on ROKU: Add the channel from the ROKU store or by searching FOX61.
Steam Live on FIRE TV: Search ‘FOX61’ and click ‘Get’ to download.