Federal Reserve Raises Short Term Interest Rates

TO KNOW IN CASE YOUR PET HAS AN ENCOUNTER WITH THE INVASIVE SPECIES. I'M JENNIFER CRAWFORD, THANK YOU FOR JOINING US FOR THE FIRST TIME IN 3 YEARS, THE FEDERAL RESERVE HAS RAISED ITS SHORT-TERM INTEREST RATE IN WHAT'S CONSIDERED AN ATTEMPT TO HELP SLOW INFLATION. THE UNANIMOUS VOTE OF THE 12 MEMBER COMMITTEE IS IN OPPOSITION OF THE WISHES OF PRESIDENT TRUMP. >> FLORIDA GULF COAST UNIVERSITY ECONOMICS PROFESSOR AT THE LIQUOR COLLEGE OF BUSINESS. >> DR VICTOR CLAAR JOINS US NOW AND DOCTOR, FIRST, HELP US UNDERSTAND THE SIGNIFICANCE OF A QUARTER OF A PERCENTAGE RATE HIKE. >> THIS IS THE FIRST INCREASE IN INTEREST RATES THAT THE FED HAS FOLLOWED THROUGH ON IN ABOUT 3 YEARS SINCE 2023. AND BECAUSE WE'VE HAD REALLY PERSISTENT INFLATION OVER THE LAST SEVERAL YEARS. THIS IS A SIGNAL THAT MAYBE FOR THE FIRST TIME IN THE LAST 3 YEARS THE FED HAS REALIZED THAT INFLATION WHILE IT CONTINUES TO BE SORT OF LOW AND SLOW, IT CONTINUES TO BE OUT OF LINE WITH THEIR ONGOING GO FOR A PRICE INFLATION, WHICH IS JUST 2% PER YEAR. SO IF THEY RAISE INTEREST RATES, WHICH WILL MAKE MORTGAGES MORE EXPENSIVE CAR LOANS, MORE MORE EXPENSIVE BUSINESS LOANS FOR CONSTRUCTION COMPANIES, MORE EXPENSIVE IF THEY'RE RAISING THOSE RATES. IT'S BECAUSE RIGHT NOW THEY'RE MORE CONCERNED ABOUT THAT. PERSISTENT INFLATION THAT PESKY IN INFLATION, THEN THEY ARE ABOUT THE POSSIBILITY OF DRIVING DOWN PURCHASES BY CONSUMERS AND FIRMS THAT THEY BORROW MONEY TO FINANCE. >> WHERE WILL THE PUBLIC SEE THE IMPACT OF THIS? >> WE ARE ALREADY SEEING IT BECAUSE FINANCIAL MARKETS ANTICIPATED A BIT OF AN INCREASE IN INTEREST RATES TODAY. HOME MORTGAGE RATES HAVE BEEN RISING ACCORDINGLY. FINANCIAL MARKETS OFTEN REACT TO NOT JUST NEWS, BUT ALSO THE ANTICIPATION OF NEWS. AND SO OFTEN IF THERE'S MONEY TO BE NEED TO BE LOST. YOU GO AHEAD AND FINANCE THINGS OR BORROW MONEY, NOT BASED ON HOW THINGS ARE THIS MINUTE, BUT BASED ON HOW YOU THINK THINGS MIGHT BE DOWN THE ROAD. SO BIKE, SO PEOPLE LENDING MONEY, THEY'VE ALREADY RAISE INTEREST RATES A LITTLE BIT BECAUSE THEY THOUGHT WE WERE HEADED THAT DIRECTION ANYWAY. >> THAT'S WHY THEY'RE AT THE HIGHEST SO FAR IN 2026. THAT'S CORRECT. ALL RIGHT. CAN YOU HELP US UNDERSTAND FOR FROM AN INVESTMENT POINT? WHAT DOES THIS MEAN FOR INVESTORS? >> SO WHEN THE FED USES ITS ONE AND ONLY ONE TOOL, WHICH IS INTEREST RATES, IT WORKS REALLY, REALLY WELL WHEN THEY'RE TRYING TO SLOW DOWN THE ECONOMY. IF YOU THINK OF IT LIKE A HORSE IS RAIN OR PULLING ON A STRING, PEOPLE WANT TO STRING IT'S REALLY EASY TO REIN THINGS IN. AND SO THAT'S WHAT THE FED DOES WHEN IT RAISES INTEREST RATES. IF IT THINKS PEOPLE ARE SPENDING TOO MUCH MONEY AND THEIR FINANCING THOSE PURCHASES TO DO IT IF THEY WANT TO SLOW DOWN THAT DEMAND, THEN THEY RAISE INTEREST RATES AND THEY MAKE IT EVEN HARDER TO AFFORD TO PURCHASE GOODS AND SERVICES AND HOPEFULLY WHEN THAT DEMAND DECREASES, IT MAKES PRICES SLOW DOWN AND NOT RISE QUITE AS QUICKLY AS THEY HAD BEFORE. WHEN MONEY IS CHEAP PRICES RISE. MY MONEY'S EXPENSIVE PRICES. WISE LESS LOW LINK. >> YES, BECAUSE IT SEEMS A BIT COUNTERINTUITIVE TO THE AVERAGE PERSON OUT THERE THAT WILL RAISING AT INTEREST RATE JUST A QUARTER OF A PERCENTAGE POINT THAT IS EXPECTED TO PUT THE BRAKES ON INFLATION. >> IF YOU ARE A POTENTIAL HOME BUYER RIGHT NOW, IT'S NOT GOOD IN EITHER DIRECTION. ON ONE HAND, YOUR RATE IS MORE THAN IT'S BEEN BEFORE. WHEN YOU'RE THINKING ABOUT BUYING THAT NEW HOUSE PRICES ARE HIGHER. FOOD IS HIGHER. GASOLINE IS HIGHER. AND IF YOU'RE THINKING ABOUT PURCHASING A NEW HOME, EVEN IF PRICES IN SOUTHWEST FLORIDA HOMES HAVE MODERATED A LITTLE BIT. IT'S THE FINANCING NOW THAT WILL BE EVEN HIGHER. THE FED DOESN'T WANT TO DO THIS. THE FED DOESN'T WANT TO MAKE IT MORE EXPENSIVE FOR PEOPLE TO TAKE OUT A MORTGAGE LOAN TO BUY THEIR FIRST HOME. BUT RIGHT NOW THEY'RE MORE CONCERNED ABOUT ONGOING PERSISTENT INFLATION THAT AFFECT EVERYBODY, HOMEOWNERS AND OTHERWISE. >> NOW, WILL THIS IMPACT ARE JUST SKYROCKETING FUEL COSTS THAT WE'VE BEEN SEEING? >> SO THE FED IS CONCERNED ABOUT INFLATION IN GENERAL, BUT IT PROBABLY WON'T THIS ACTION TODAY MAY SLOW DOWN PRICE INFLATION OVERALL, BUT BECAUSE THE INCREASES WE'VE SEEN IN OIL PRICES, DIESEL PRICES AND GASOLINE PRICES, WHICH IS WHERE WE SEE IT THE MOST EVERY DAY, WE SEE THOSE GAS PRICES. THIS PROBABLY WON'T MAKE THOSE PARTICULAR PRICES LOWER, BUT IT MAY SLOW DOWN OVERALL PRICE PRESSURE FOR ALL OF THE OTHER THINGS THAT WE BUY IN A TYPICAL WEEK. >> SO WE ALSO KNOW THAT THIS DECISION HAD TO BE A VERY TOUGH CALL FOR THE FED. IT'S ALSO IN OPPOSITION TO WHAT PRESIDENT TRUMP WANTED. WHAT DO YOU THINK THE OVERALL REACTION IS GOING TO BE? >> SO FINANCIAL MARKETS TYPICALLY REACT TO THE UNEXPECTED. SO AT LEAST INITIALLY AFTER THIS ANNOUNCEMENT WAS MADE TODAY, THERE WASN'T MUCH OF A REACTION IN FINANCIAL MARKETS BECAUSE MOST INVESTORS ANTICIPATED AN INTEREST RATE INCREASE AND THAT IS WHAT WE GOT. AND IT'S ABOUT AS MUCH AS WE EXPECTED. I THINK THE WILD CARD AT THIS POINT IS WHETHER WE'RE IN FOR EVEN MORE INTEREST RATE INCREASES OVER THE COURSE OF 2026, MAYBE WE'RE ONE AND DONE WITH THIS SINGLE SIMPLE OR SMALL INTEREST RATE INCREASE. MAYBE THE FED, THOUGH, THINGS THAT THAT THIS IS THE BEGINNING OF EVEN MORE WORK THAT HAS TO BE DONE AND THEY'RE TRYING TO EASE US INTO AN OVERALL RATE OF INFLATION. THAT'S HIGHER THAN THE ONE THAT WE CURRENTLY HAD. BUT AGAIN, THEY'RE DOING THIS MAINLY BECAUSE THEY KNOW THAT THE INFLATION FIRE IT USED TO BE RAGING DURING THE PANDEMIC. NOW IT'S SMOLDERING AND THEY WANT TO MAKE SURE THAT THAT INFLATIONARY FIRE IS PUT OUT ONCE AND FOR ALL. >> AND WHAT IS THE NEXT STEP FOR THE FED AT THIS POINT? >> THE NEXT STEP FOR THE FED IS TO DO SOME SOUL SEARCHING. SEE HOW MARKETS REACT. SEE HOW INDICATORS LIKE PRODUCER PRICE INDEX IS AND CONSUMER PRICE INDEX IS SEE WHETHER THOSE CHANGE OVER THE NEXT COUPLE OF MONTHS. AND THEN THEY HAVE TO CONSIDER WHETHER OR NOT BEFORE THE YEAR IS OUT. THEY WANT TO RAISE RATES AT THEIR NEXT MEETINGS. EVERYBODY KNOWS WHEN THE FED IS MEETING. THE ONLY QUESTION IS WHAT, WHETHER THEY'LL DO SOMETHING AND WHAT EXACTLY THEY'LL DO. >> ALL RIGHT. BUT WE WILL WAIT TO SEE WHAT HAPPENS. YES, WE WAIT AGAIN. THINK THE SUMMIT STARTER VICK TO CAR. YOU'RE WELCOME. >> ECON GURU, I LIKE TO CALL YOU THAT. I'LL TAKE A THANK YOU FOR JOINING US.