January 13, 2023
Media Advisory: SIU profs can discuss probable 8th Fed rate hike, mixed economic outlook
CARBONDALE, Ill. — As the Federal Reserve considers making its eighth consecutive interest rate increase since early 2022 and major employers announce layoffs and consider bankruptcy, two professors from Southern Illinois University Carbondale’s College of Business and Analytics can discuss the anticipated rate hike, inflation, recession predictions by economists and other related issues.
The Federal Reserve Board, which meets Jan. 31-Feb. 1, is expected to increase rates 0.25% to 0.5%, with indications that its members are leaning toward the lesser hike as they continue to try to bring down inflation.
Kevin Sylwester, professor of economics and director of the School of Analytics, Finance and Economics, can be reached at ksylwest@siu.edu. Scott Gilbert, economics program coordinator, can be contacted at gilberts@siu.edu. Gilbert and Sylwester say that there is some good news on the economic front but also ongoing concerns about the possibility of a recession.
Some readings seem to indicate that the worst inflation round in about 40 years is gradually improving. Inflation slowed to 6.5% in December according to data released by the latest consumer price index report issued by the Bureau of Labor Statistics on Thursday (Jan. 12).
That’s a bit of a mixed bag when it comes to the numbers. Although the 6.5% increase over prices the preceding year is less than the record-high peak of 9.1% in June 2021 and the smallest 12-month increase since October 2021, it’s still well above the Federal Reserve’s inflation target of 2%. Rates have exceeded that target for about two years now.
“The Federal Reserve might be hitting the sweet spot of lowering inflation without tipping the economy into a recession,” Sylwester said. “The concern of a recession still exists, though.”
The Fed sets the benchmark interest rate that influences virtually all borrowing costs throughout the economy and the anticipated increase would bring the rate to about 4-4.25%, the highest it has been since early 2008.
“Forecasts are for inflation to fall to around 2.5% or so by the year 2024, which is in line with the Survey of Professional Forecasters, produced by the Federal Reserve Bank of Philadelphia,” Gilbert said.
Both note that the economic outlook is still very vulnerable.
Follow the latest report, the stock market showed slight gains with the Dow Jones Industrial Average climbing nearly 217 points, or 0.6%, while the S&P 500 climbed 0.3% and the Nasdaq was up 0.6%. Drops in fuel, automobile and home prices play a large part in the decrease in inflation rates, experts say, but there have also been reports in recent weeks of large-scale layoffs in some businesses such as cryptocurrency company Coinbase and Amazon as well as big stock price drops for vulnerable enterprises amid fears of possible pending bankruptcies such as Party City, Bed Bath & Beyond and other retailers.
Despite those job losses, Gilbert and Sylwester note that the unemployment rate reported by the Bureau of Labor Statistics is only 3.5%.
“In terms of unemployment and jobs, the unemployment rate remains at or near historic lows, despite the layoffs, with projected low rates in years to come as well,” Gilbert said.
Other factors come into play in the economic outlook as well, including grocery prices. While prices for some products, such as eggs, have skyrocketed (due in large part to an avian flu outbreak), overall world food prices dropped by 1% in December over the previous year. However, taken as a whole, prices were about 10% higher than the previous year.
In addition, although prices for many goods are coming down, costs for services are climbing, officials say, which also affects inflation.
High prices are driving many Americans to use their credit cards more, and higher interest rates make the debt more expensive. TransUnion reports that as of last fall, the average credit card user was carrying a $5,474 balance, an increase of 13% over the previous year. Meanwhile, the average credit card debt interest rate has soared to almost 20%, nearly 4% higher than in early 2022, the biggest one-year increase in the four decades Bankrate has tracked rates.
Sylwester and Gilbert are available to discuss the overall economic picture or related issues.