Federal Reserve raises interest rates to try to tame soaring inflation

MELVILLE, N.Y. -- The Federal Reserve raised interest rates Wednesday in an effort to tame inflation that's soaring at a 40-year high.

Short-term borrowing was nudged up a half a point, and as CBS2's Carolyn Gusoff reports, consumers are going to feel it in their bank accounts.

Rising interest rates mean it will cost more for a car loan, to pay off a credit card and pay a mortgage.

But realtor Lisa Kennedy doesn't expect a cool-down in Long Island's sizzling seller's market.

One Smithtown split-level just sold in one weekend with 22 offers and a bidding war.

"In regards to young people who the interest rates would impact the most, OK, because they're first time home buyers or whatever the situation is, I cannot see them slowing down at all," Kennedy said.

With interest rates now above 5% for the first time in more than a decade, buyers are lowering the amount they have to borrow. On one Plainview home, there was a 40% down payment.

"They're going to have to put a larger deposit down to decrease their monthly payment," said Joe Moshe, owner of Charles Rutenberg Realty.

"This is not some sort of new or uncharted territory, it's just that rates have been too low for too long," analyst Jonathan Miller said.

Miller expects the easing housing inventory will help buyers.

"Slows sales a bit, which allows a little bit more inventory to come on line, which then keeps prices from rising as steeply as they have been," he said.

The goal is to slow down the economy to rein in inflation without causing a recession, a delicate balancing act.

"It's a classic case. If you knew the rates were going to go up, up, up, you're better off purchasing now, but then it's still more costly than what it was, let's say, three, four months ago," said Dr. Anoop Rai, with the Hofstra University Center for International Financial Services.

"Normally when the interest rates would go up, then the companies start tightening their belts, maybe they hold off on hiring that extra person," said Dean Murray, owner of LI Job Finder.

But LIJobFinder.com says it doesn't foresee any slowing of the job market.

"There are companies that need help so desperately, they're looking to hire just to keep their doors open," Murray said.

The Federal Reserve has hinted this is just the beginning. Interest rates will continue to climb through next year.

On the positive side, watch for more interest earned on savings accounts and CDs.

Federal Reserve Chair Jerome Powell said central bankers are not considering large increase in interest rates, and that fueled the best day for stocks on Wall Street since 2020.