Tyler Schipper, an associate professor of economics and data analytics at the University of St. Thomas, discussed the Federal Reserve’s decision to raise interest rates for the first time since 2023 with KARE 11 and WCCO Radio. Schipper explained the factors behind the quarter-point increase and what the move could mean for consumers and the broader economy.
From KARE 11:
From WCCO Radio:
Rena Sarigianopoulos: It is the job of the Federal Reserve to kind of keep our economy on track. If you look at it from someone who’s an outsider who isn’t a part of economics, it seems like this makes it harder on people who need to borrow money. Someone who can write a check for a car or a house, this doesn’t affect them, but it does affect people who have credit cards. Can you explain how raising rates actually does help the economy?
Tyler Schipper: It’s a bitter pill, certainly. If you think about it like taking your medicine so you can feel better later, and that it is going to cause more short-term pain for people wanting to borrow money. I’m particularly sympathetic that we know that people who have struggled the most with affordability are lower-income people who have put money on their credit cards, and that will make those payments harder for them.
And so the way that this works, and the argument for it, then, is if you can slow down demand for goods and services in the economy, that hopefully helps keep prices in check a little bit more, and then wages will hopefully be higher. We’re growing faster than inflation, so people’s real incomes actually start being positive again. Right now, inflation’s higher than wages, and so even without this, people’s real budgets were shrinking.
Sarigianopoulos: When is the last time we saw people’s salaries higher than inflation? It feels like a very long time ago, but that may not be the case.
Schipper: To be clear, it’s wage growth versus inflation, and we did see that in the high inflationary period during the Biden administration. Yes, wage growth was much higher because people were moving jobs quickly, but inflation was also much higher. ...
