Expert weighs in after Federal Reserve raises interest rates for 1st time in 3 years

The U.S. Federal Reserve is increasing its efforts to tamp down inflation.

On Wednesday, U.S. Federal Reserve Chair Kevin Warsh announced that the central bank is raising its benchmark rates by 0.25%.

The 12-member policymaking board, including Trump-appointed U.S. Federal Reserve Chair Kevin Warsh, voted unanimously in favor of the rate increase.

The effort comes after a monthslong rise in inflation.

The current stretch of rising inflation is due to multiple factors, including the U.S. War in Iran that has sent energy prices soaring.

The rate hike brings the central bank’s flagship rate to between 3.75% and 4%.

“The one pro is that this is the Central Bank’s primary instrument for fighting inflation,” Professor of Economics at Western Carolina University, Edward J. Lopez, Ph.D., said. “On the downside, we have a little bit of pain with the medication because it’s going to raise interest rates in short term as soon as the decision is made.”

It changes the short-term interest rates that banks pay to borrow from each other in the short term, then that ripples out to the rates that banks charge their customers.

During Wednesday’s announcement, Warsh said, “The plain fact is that inflation is too high.”

It remains to be seen if there will be more interest rate hikes in the near term, but some experts believe there is a good chance that another rate hike will happen.

“Historically, when the Fed does begin a rate increase, it tends to become a pattern at least for several quarters. The pattern isn’t always a long one, but sometimes it is,” Lopez said.