Raise Interest Rates

“Get ready for the climb.” “Fed to raise rates three times this year.” “Rates will rise faster and higher than previously expected.” In the past few months, newspapers and media outlets delivered non-stop coverage of rising inflation and the Federal Reserve’s discussions about increasing interest rates. These headlines often create confusion and panic because they do not clearly explain why there is inflation, why interest rates will likely increase, and what it means for the average American. However, once examined from an informed and foresightful perspective, the decision becomes clear: I believe that the Federal Reserve must raise interest rates in order to preserve the economy for the long term.

Inflation is the difference in the cost of products between two points in time. For example: if in 2020 an apple was sold for $1, and in 2021 that same apple was sold for $1.05, the inflation rate would be 5%. High levels of inflation are caused by more demand than there is supply, and they make goods and services inaccessible for many Americans and lower the value of the dollar.

However, one of the most effective ways the federal government can curb inflation is by increasing interest rates. When it becomes more expensive for people to borrow money from banks to buy houses, cars, and other expensive assets, fewer people do so. This lowers the demand for products, and in turn, lowers inflation back to acceptable levels. 

Our country’s current problem with inflation is the result of early Covid-era economic policies that focused on short-term stability. Stimulus checks injected money into the economy, slashed interest rates inspired millions to buy new homes, and child tax credits gave parents more money to spend. While this strategy of empowering Americans during a difficult time undoubtedly saved many households and kept the economy afloat, we’re no longer on the doorstep of an economic crisis, and the Fed must respond accordingly. 

The Fed’s responsibility is to prevent inflation from spiraling out of control. Thus, even though raising interest rates might slow down the economy and make it harder for some Americans to make large purchases in the short term, it’s vital for protecting our economy in the long-term. We are now at an economical crossroads, and whatever decision the Fed makes will undoubtedly have massive impacts on our country’s stability. If it chooses to prioritize short-term growth, we can do nothing but watch as inflation rates become too high to safely manage. Thus, the only wise course is one that values long-term economic safety. That course is raising interest rates.