The Fed raises interest rates, what that means, plus everything to watch this fall

Christy Strawser (0:00)

The day's biggest stories, the people behind the headlines, the conversations you won't hear anywhere else. I'm Christy Strawser. You're listening to Audacy's On Deadline. The Federal Reserve raised interest rates. And what does that mean for us?

Here's KYW in Philadelphia.

SPEAKER_2 (0:18)

For the first time in three years, the Federal Reserve has raised interest rates. Rates will now go up by a quarter of a percent due to the stubbornly high inflation that remains well above the Fed's 2 percent goal. Here's Fed Chair, Kevin Warsh.

Kevin Warsh (0:30)

Today's policy action will support a timelier return to the committee's 2 percent goal. This committee will deliver price stability.

SPEAKER_2 (0:39)

KYW's Vic Ragapathy spoke to local economics experts.

Vic Ragapathy (0:43)

The quarter of a percent rate increase came as no surprise to economists due to the unrelenting inflation consumers have faced. But the White House tried to urge the independent Federal Reserve to lower interest rates to spark the economy. Wharton Professor of Finance, Etai Goldstein says there's a trade-off the Fed constantly deals with.

Etai Goldstein (0:58)

When you're increasing rates, you're contributing to the decrease in inflation, but at the same time, you are weakening the economic activity, and this may increase unemployment.

Vic Ragapathy (1:09)

This means higher mortgage rates and more expensive credit card bills and car loans. As the war on Iran drags on, Drexel economics professor Marco Ayrado doesn't believe inflation will lessen enough to make this rate increase a one-off.

Marco Ayrado (1:20)

Rarely the Fed x-ones. So rarely we see the Fed increasing the rate in one quarter and then don't raise it again. So usually it goes in barely two steps.

Vic Ragapathy (1:29)

But Fed Chair Kevin Warsh says he expects a steady rate throughout 2027

Tommy Tucker (1:36)

Friend Peter Rusciutti, senior professor of practice at Tulane, talk about the Fed raising interest rates.

Peter Rusciutti (1:40)

What they did is they raised very, very short-term interest rates. In other words, what they raised was the rate at which banks can borrow from each other overnight. What they moved is not what affects most people. I mean, you still see mortgages at 7%, 7.25%. You're probably not going to see credit cards move around a lot. But what they're cutting off, Tommy, is the inflation and the fear of inflation. And that's kind of driven by a lot of factors. Obviously, one is the Iran war and the closing of the Strait of Hormuz. We're paying now about 40% more for gasoline than we were at the end of February when the war began. And of course, now the Strait of Hormuz is closed. It was open before.

And the prices of oil are up for $100 a battle. So certainly, there's certainly inflation to worry about. I guess the other side is the inflation is, of course, the, in fact, I don't think people should use the word inflation.

It's so many different ways to calculate. It's really affordability. It's sort of like, Tommy, you and I go on a lunch and how much more it costs now than it did three months ago. And of course, if we did have lunch, I would make you pay.

Tommy Tucker (2:53)

Well, this would be a drive-through window at the fast food zoo, and it really wouldn't matter.

Christy Strawser (2:57)

The war in Iran and rising interest rates have obvious political ramifications. Let's return to Tommy Tucker in New Orleans with a discussion with Robert Hogan, Louisiana State University Political Science Department Chairman, about who voters trust more on the economy these days.

Tommy Tucker (3:14)

This is just anecdotal. But I've been noticing in the last six months or so, when you go to the grocery store, and I go often, the lack of enthusiasm is palpable. You can see people with just a couple of items in the basket, or see the discussions going on between people and the frowns on their face. The question is, does that transfer to the polls?

Robert Hogan (3:37)

Yeah, I mean, I think you're absolutely right. I think there's a great deal of anxiety right now among voters. If you ask them in polls, as pollsters often do, what is the biggest issue facing the country right now? Economic issues, inflation, affordability are always at the top of those lists for voters. And it's something that is front and center, I think, in terms of their voting. Elections in the United States, you elect politicians to solve your problems.

And we're in a situation where voters are having a choice of who they're going to vote for, what party they're going to support. And I think economic matters certainly play a big role. We know historically, they played a large role on various ways of measuring economic conditions. And we tend to think of two different ways.