Inflation remains high while student interest rates climb

Sam Kozlowski

Writer

Slowing inflation from its peak has so far been successful for the Federal Reserve, but it comes with downsides as Federal Reserve Chair Jerome Powell has slowly increased interest rates to a range of 4.50% to 4.75%.

What does this mean? Slowed economic growth is the result of moves to tighten monetary policy in the U.S.

To curb high inflation on everyday goods, the Federal Reserve tightens monetary policies by raising interest rates, which makes borrowing money more expensive; not printing cash, which reduces the money supply lent to banks; and controlling wages.

The latest Federal Reserve decision to raise rates by 25 basis points came on Feb. 1. Hope for an economic soft landing is still alive, Powell said. He has made it clear that he does not want to over tighten monetary policy. However, ongoing increases in rates are needed to get inflation back between the 2-5% area, according to Powell.

“The high inflation rate we are experiencing now increases our cost of living. Anyone whose income is not adjustable in the short term are forced to have a lower standard of living. It means that people both have lower purchasing power and save less for their future,” said Dr. Kuang-Chung Hsu, Department of Economics at the University of Central Oklahoma.

Purchasing power is the value of goods or services that can be purchased with one unit of currency, therefore purchasing power drops when the price of goods rises.

College students borrow billions of dollars in student loans every year. High interest rates affect students in a variety of ways, such as higher monthly student loan payments, which increases the length of time it takes to repay loans for graduates.

Higher loan costs often discourage students from pursuing their education.

Fewer job opportunities for students is another result of slow economic growth due to high interest rates. This is because businesses must pay more for borrowing money, which is why many compa- nies lay off workers during times of economic uncertainty.

“My concern is that most college kids work for minimum wage or bottom wage in a company. In other words, they are dispensable workers when the company loses profit and needs to lay off workers,” Hsu said. “For them, they are the greatest victims of this inflation.”

Waves of inflation come and go. Historically in times of high inflation, interest rates must be above 5% for inflation to ease for good. This includes during the Great Depression, the recession throughout the 70s, the dotcom bubble and the housing market crisis in 2007-2008. At the current 4.50% to 4.75% rate, expect interest rates to rise more in the future.