Page 19 - BusinessWest April 18, 2022

Jeff Sullivan says many in the banking world feel the Fed’s rate increase is long overdue.
financing,” Forbes adds. “It simultaneously encourages people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower infla- tion and moderate economic activity — a/k/a cool off the economy.”
“We’ve lived with this low-rate environment for the last few years, which has been extremely difficult for banks on the margins. So this was definitely something we have been waiting for.”
Because so many other rates in the economy are tied to the funds rate, any increase by the Fed has a direct effect on the interest consumers pay when they carry a credit card balance or take out a loan, and on yields for savings accounts and certificates of deposit, Nerdwallet notes.
“In general, the Fed reduces rates to try to stimulate the economy and raises rates to try
to head off inflation,” the site explains, using
a mechanism that causes rates on savings accounts, mortgages, and credit cards to rise. “Interest rates have been low for so long that many consumers — Millennials and Gen Z, par- ticularly — haven’t really known a time when borrowing wasn’t cheap and savings vehicles didn’t pay next to nothing.”
Sullivan agreed. “Obviously, they’re paying a
Jeffrey Sullivan, president and CEO of New Valley Bank, said the Fed’s move was not only expected, but had been announced and much discussed in the marketplace.
“People are saying it’s overdue, and many
are saying the Fed should have done it earlier to cool off the economy and keep inflation down a little bit,” he told BusinessWest. “Some people are worried there could be a lot of increases com- ing down the pike. But if it’s slow and steady,
it’s probably not going to be a huge shock to people borrowing money, whether businesses or consumers.”
According to Forbes, the Federal Reserve’s mis- sion is to keep the U.S. economy humming, but
not too hot or too cold. So when the economy booms and distortions like inflation and asset bubbles get out of hand, threatening economic stability, the Fed can step in and raise interest rates, cooling down the economy and keeping growth on track.
“When the Fed raises the federal funds tar- get rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spend- ing more on interest payments,” the publication notes.
“Those who can’t or don’t want to afford the higher payments postpone projects that involve
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