Tennessee Tech Business College Dean Tom Payne said the interest rate increase issued by the Federal Reserve means a tough economy in the near future.
Interest was increased three-quarters of a percentage point in an attempt to combat inflation. It is the sharpest height since 1994.
Payne said the move will result in interest rates going up across the board, so you’ll see a decrease in asset values and consumer confidence.
“This economy is driven by consumer spending,” Payne said. “70 percent of our economy is consumer spending, so when that slows down, the economy slows down. So it is a trade off the fed has between employment and inflation.”
Payne said the rate increase is an attempt to decrease the money supply. Payne said there will be some pain to start out. Payne said it is likely we will enter a recession by the end of the year.
“I would say a 50 percent likely hold that we are currently in or entering a recession,” Payne said. “I would put it at 75 or 80 percent by the end of the year, but the good news about that is they don’t last forever. The cure for high prices is high prices, because folks would not be able to spend.”
Payne said demand will likely start to fall considering high prices, thus causing a decrease in costs. Payne said over the next six to nine months, he expects inflation to return to a level the Federal Reserve is comfortable with.
“I look for a relatively quick reaction in inflation,” Payne said.”So, I think we will see some decreases in inflation. Certainly not back to the 2 percent target that the federal reserve has anytime soon, but I think in the next quarter or two we will see decreases.”
Overall, Payne said the Federal Reserves decision to catch up on a dollar value will have a long-term benefit. Payne said he sees the economy correcting itself after regressing.
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