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How will the federal interest rate hike impact you?

Oregon economic experts say the Federal Reserve's effort to curb inflation will make borrowing and consumer lending more expensive.

PORTLAND, Ore. — The Federal Reserve is raising interest rates by three-quarters of a percentage point — the largest increase since 1994. It’s an effort to slow the economy and fight back against rapid inflation, which is running at a 40-year high. 

Ultimately, the Fed hopes an interest rate increase will help to lower prices, but by raising the federal funds rate, borrowing money will become more expensive.

For one, it'll cost more to buy a home in a market with already-high housing prices.

RELATED: Yes, typical U.S. rent has exceeded monthly income earned on the federal minimum wage

"Housing really stands out ... the sharp rise in mortgage rates to almost six percent is really a big change in that market," said University of Oregon economics professor Tim Duy. "It's making housing more unaffordable for a bigger group of people."

Duy said that with already-high housing prices and surging mortgage rates, some people may wait to buy a house until interest rates or home prices fall.

As for other individual impacts, people could see car loan monthly payments or credit card interest rates rise.

"If inflation does not start to fall, the Federal Reserve will keep raising interest rates and hold interest rates high even as economic activity slows," Duy said.

RELATED: US inflation hit a new 40-year high last month of 8.6%

As a byproduct of this, the Fed projects the unemployment rate will steadily grow, either through pauses in hiring or layoffs. ECONorthwest senior project director Bob Whelan said businesses will respond to a tightening economy.

"When demand goes down, prices will go down — that’s the hope, you’re slowing the economy and it will bring up the unemployment rate some, so find a job you like and keep it," Whelan said.

Banks may also be more careful about who they lend to due to increasing interest rates, so you may need a higher credit score in some cases.

Outside of the goal of lowering prices and curbing inflation, Whelan said the hike could have another positive effect.

"What it is good for is it will improve the return people get on their savings, which is important for a large segment of the population," he said.

The Fed projects it will raise interest rates multiple more times this year, which Duy said could create a high risk of a recession.

RELATED: Biden says recession is 'not inevitable'

"They don’t intend or aren’t attempting to induce a recession, however it’s increasingly likely and I think they know it," Duy said. "Something of a rough patch is ahead of us."

Duy and Whelan both said the Federal Reserve waited too long to increase interest rates, and people should manage their money with the expectation that some savings may be needed later this year.

"Keep money in the bank, just build a little cushion for yourself to protect yourself just in case this does fall into a recession," Whelan said.

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