Cheddar News Senior Reporter Chloe Aiello explains the trickle down effect the Fed rate hikes can have on the broader economy

As the Federal Reserve warns it could continue to raise benchmark interest rates, it raises questions about what it means for the general public. Cheddar News Senior Reporter Chloe Aiello explains the trickle down effect it has on the broader economy, from inching up interest in your savings accounts to forcing large-scale layoffs.&nbsp;

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What Fed Rate Hikes Mean for You

Defends one major tool to cool inflation is hiking interest rates. It works by increasing the cost of borrowing money thereby increasing the cost of goods and services and encouraging people to save money rather than spend cooling demand works to cool inflation because experts have described the type of inflation that we're currently seeing as too many dollars chasing too few goods and services. Higher interest rates can have ripple effects on the economy. They obviously affect anything that has to do with borrowing. So borrowing money like making mortgage loans, mortgages and home loan payments more expensive as well as business, auto and home loans, credit card debt similarly becomes more expensive as card companies tend to move in lockstep with the fed. So make your payments on time everybody. One area where you might actually make some money is your savings account. The fed funds rate serves as a benchmark for annual percentage yield or A P Y. So you'll get better returns on your savings, especially according to Forbes, if you have an online high yield savings account. Now things look a little bit different for investors. Markets tend to react negatively to rate hikes because that increases the cost of doing business for major corporations. When interest rates rise, the market price of bonds typically declines and Devon's face value can decline as a result of inflation to Shannon. Okay. So what are experts anticipating the next hike will look like? Well, there's been eight consecutive hikes, as you mentioned since March of 2022 starting with a 25 basis point hike during the March 15th through 16th, Federal Open Market Committee meeting that brought the fed funds target rate to 0.25 to 0.5%. Those hikes eventually worked their way up to 75 basis point hikes in the June, July, September and November meetings before gradually coming back down to 25 basis point last month. Experts were previously expecting the hike at the next meeting to be kind of on par with that and that's March 21st through 22nd. But a slew of economic data that we've seen in the past couple of months has shown inflation continuing to creep higher. Plus an overheated January jobs report sent the market into a tailspin venture. Jerome Powell has been Testifying this week before Congress. He said quote, the latest economic data have come in stronger than expected which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. He added that the Fed quote would be prepared to increase the pace of rate hikes. Now, this has understandably stoked fears that we could actually see a 50 basis-point rate hike in the next meeting. The CMS fed watch tool actually showed a major shift to a 70% probability of that half point hike at the next meeting up from a 30% probability. Shannon. Okay. So how could all this affect employment then? Well, as I mentioned before, higher interest rates make it more expensive to do business and they make consumers less likely to spend their own money. So, in response to stress, yes, many companies cut costs and downsize their staffs. Now amid a pullback in digital ad spending, we've already seen tech companies cutting costs leading to a wave of layoffs. The jobs market however, has remained strong as we saw in that January jobs report. But more Americans employed and competitive and more competitive wages means more spending and more inflation. So in many cases, job losses are actually an intentional side effect of interest rate hikes to cool the economy down on Tuesday, Senator Elizabeth Warren of Massachusetts had a heated exchange with Jay Powell. She called the rate hike cycle quote the most extreme in 40 years and pointed to a fed report forecasting an unemployment rate of four 6%. If the bank continues with its planned hikes, that would mean two million more people out of work. Pal responded that roughly 4.5%, unemployment is still pretty low for the past 75 or so years. So Shannon, we're gonna have to wait until tomorrow to see whether or not the jobs market has actually responded to these rate hikes in kind.