UT Economist Says Rate Hike May Tame Inflation

Knoxville — The Federal Reserve board voted for another increase in short-term interest rates, the fifth increase in less than a year.

A University of Tennessee economist said it was needed, because previous increases in the interest rate did not seem to have much impact on inflation.

“It has not led to any noticable slowdowns in the U.S. economy,” said Dr. Bill Fox. “Most everyone thinks that the first quarter of this year had strong growth, and frankly, we didn’t expect that.”

Banks raised their prime lending rate to 9 percent from 8.75 percent. The rate that banks charge each other for overnight loans was raised to 6 percent from 5.75 percent.

Fox said the rate increases are designed to reduce the rate of economic growth.

“Some of that reduction will come because people who otherwise might buy new homes or cars will find it more expensive and will choose not to do so,” Fox said. “And for people who have already made interest-sensitive investments, like variable-rate home mortgages, they may resist purchasing other consumer goods.”