Economist Mike Walden: Impacts of Rising Interest Rates

I’m Mary Walden with economist MW, welcoming you to the economic perspective.  Today’s program looks at impacts of rising interest rates.  Mike, interest rates are on the rise, and there’s a double-edged sword for consumers.   Earnings on safe investments like CDs will go up.  However, for borrowers, interest costs for loans for homes, vehicles, and other items will also increase.  What’s the net impact of these effects?

  1. Generally the net result is negative, as rising rates cause consumers to borrow and spend less
  2. But two factors will likely cushion this impact today
  3. First, consumer confidence is very high – higher than during the last expansion
  4. If confidence is high, consumers are more likely to borrow
  5. Second, the interest rate increases have been – and will continue to be – moderate
  6. And even with the high, interest rates are still historically low
  7. Most economic models expect slowly rising interest rates for the next two years
  8. Federal Reserve – which is behind the rate hikes – is trying to achieve a “soft landing” in the economy – restraining inflation while avoiding a recession
  9. Tall task

And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.