Breaking News
More () »

Expert believes recession is likely after Federal Reserve issues largest interest rate hike in two decades

On Wednesday, Federal Reserve Chairman Jerome Powell announced a half percentage point interest rate hike.

ATLANTA — Federal Reserve Chairman Jerome Powell announced Wednesday a half a percent interest rate hike, the highest such increase by the country's central bank in two decades. Powell said it is an effort to slow record inflation and he remained optimistic the move can be a step toward avoiding a recession.

But 11Alive's financial expert Andrew Poulos isn't as optimistic.  

"I think a recession at this point is expected, it is just a matter of when. Those who don't have anything saved up for a rainy day fund, sort of emergency fund need to focus on their finances," Poulos said. "What kind of recession we are going to have I think that is yet to be determined but I think we all need to plan for some kind of recession."

He added a recession though is most likely 12 to 24 months out, meaning people may have time to build up an emergency fund and pay down debt. 

In addition to increasing the interest rate, Powell indicated the Federal Reserve will most likely announce several more significant interest rate hikes later this year of up to half a percentage point each time.

For consumers, Poulos said those trying to buy a home or car, the Federal Reserve's plans mean you won't be offered record low-interest rates that were available early in the pandemic for mortgages and car loans. 

"2003, to 2005, 2006 when we had rates at 7 and 8 percent and that was the norm, I think that is going to be the new norm now," Poulos commented. "We have all as consumers just got accustomed to very low-interest rates and in situations where you have that low fixed-rate of 2, 2 and a quarter or 3 percent, count your blessings."

Poulos also mentioned it is in your best interest to consider building up or adding to a rainy-day fund because if the country enters a recession, layoffs are very likely across several job sectors. For months employers in various fields have been handing out record salaries to new hires in a very competitive jobs market. 

"Rising wages is healthy, but the extreme we have right now at some point is going to become unhealthy, and then yes if we go into some sort of deep recession, employers are going to begin to layoff, wages are going to sort of taper off, pull back and we will get this back into balance of where it needs to be," Poulos said. 

Powell on Wednesday mentioned a possibility of a soft-landing, a scenario where the inflation is slowed without the country entering a recession, but Poulos believes the chances are low. 

Before You Leave, Check This Out