Interest Rates Rise Again

The Federal Reserve raises interest rates for the 16th consecutive time. It's an effort to cool the rate of economic growth, but it's also slowing the housing market and consumer credit rates.

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RENEE MONTAGNE, host:

Our business news begins with a hike in interest rates.

The Federal Reserve's move to raise short-term interest rates by another quarter point yesterday is already rippling through the economy. Major banks followed the Fed's announcement by boosting their prime lending rates, something that will affect millions of consumers with loans tied to that rate.

Jack Speer, NPR's Jack Speer, reports.

JACK SPEER reporting:

The Federal Reserve Board meeting in Washington didn't necessarily open the door to additional interest rate increases, but neither did it slam it shut. Meaning, in the near term, the cost of money just went up.

Robert Perry is the former President of the Federal Reserve Bank of San Francisco. He says the economy is feeling the effects of a string of interest rate hikes from the Fed over the past 23 months.

Mr. ROBERT PERRY (Former President of the Federal Reserve Bank of San Francisco): We have seen interest rates move up 16 times. We've seen long-term rates move up as well. And that should take a toll in certain sectors of the economy leading to slower growth.

SPEER: It's that slowdown in growth, partly due to an expected falloff in consumer spending and a gradual cooling of the housing market the Fed is counting on to indicate when its time to stop raising rates. Perry says in terms of housing, the slowdown is already underway.

Mr. PERRY: I don't think there's any reason to be concerned that there'll be a sharp slowdown in the housing sector, but it's certainly not going to be one of the star performers of the economy over the next year or so.

SPEER: Along with a gradual slowdown in housing, the Fed's decision to raise interest rates will immediately mean higher borrowing costs for with those with home equity lines or credit cards tied to the prime rate.

Jack Speer, NPR News, Washington.

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