Local expert: Increased interest rate may not slow inflation
The Wednesday vote by the Federal Reserve System’s Board of Governors to raise the primary credit rate to 1.75% was made to temper inflation, but a local financial management adviser said the move may not pay off as well as intended.
According to Howie Pentony, founder and owner of Pentony Capital Management in Portersville, increasing interest rates works best to reduce short-term inflation.
However, the inflation striking the U.S. economy appears to be a long-term problem, he said.
“Generally, what happens is, the fed raises interest in short term rates ... If you make things more expensive, people won't buy them,” Pentony said. “Unfortunately, there hasn't been anything temporary about this inflation.”
According to Pentony, higher interest rates are beneficial for banks, which can get a better profit back on loans, but can reduce the number of consumers who seek out loans.
Pentony also said a 1.75% interest rate is not very high, but it could be raised more by the reserve as a method of fighting inflation.
Banks and investors are currently the most likely to benefit from increased interest rates, Pentony said.
“Banks have trillions of dollars people have given them and don't pay any interest,” Pentony said. “With rates up, they are going to pay people that interest. Money markets will be a direct benefactor of rising interest rates.”
Troy Streveski, of Troy-Alan Chevrolet Buick GMC, said the dealership has yet to be affected by increased interest rates on loans, and people are still willing to buy vehicles.
He also said as a dealership, employees can evaluate loans and interest rates from about a dozen sources, to help consumers find the best option.
“I saw that mortgages went up from 3 to 6%, but I haven't seen our bank rates go up yet,” Streveski said. “People still say, ‘I want a monthly payment of $300,’ or whatever it might be, and we find a car that fits that price range.”
Pentony said the rapid inflation that has been hitting the world over the past few months will best be stopped or slowed by changes in the systems that first caused inflation.
“There is all kinds of problems with inflation. Nobody can get products, the supply chain that’s out there is a real issue,” Pentony said. “The supply chains could get better, the war in Europe could end, but it's going to take something fairly significant to slow this down.”
Pentony also said he advises consumers to act sooner rather than later when it comes to buying products or taking out loans, because of the unpredictability of economic markets.
“Consumers just need to shop around; interest rates seem to me to be different depending on where you look,” he said. “(Interest) rates could be lower, but they could be higher.
“Shop around, get your best deal, and if you want to go get something, buy it.”
Streveski said many people seem to still be eager to buy cars.
“We haven't seen any effect. We are still busy,” Streveski said. “As fast as you get a new car, you've got someone on the phone asking to buy it.”
