Montgomery professor explains inflation, interest rate hike effects on consumers

MONTGOMERY, Ala. (WSFA) - The College of Business at Auburn University Montgomery is helping to make sense out of rising interest rates.

Dr. Ross Dickens is the Dean of AUM’s College of Business and a professor of finance, specializing in banking and monetary economics.

“I’ve been to teaching a class in this area for almost 35 years, and have seen many, many changes,” said Dickens.

One of the major changes that many are feeling is the effects from the worst inflation the U.S has seen in 40 years. “When I graduated college was the last time inflation was this high,” said Dickens.

The dean says government spending during the pandemic played a large role in the nation’s current situation.

“What you had during the pandemic was kind of almost what we would call a helicopter drop, where the government actually just sent more money to everyone,” Dickens explained. “Simply put, more money chasing the same amount of goods, and over time, that’s going to lead to a higher price for the goods that are available.”

The Federal Reserve recently approved the most aggressive rate hike since 1994. This is one tool being used to combat inflation. What does that mean for consumers? Borrowing money is getting more expensive, and it impacts interest rates for auto loans, student loans, credit cards and even mortgages.

“The difference between paying, say, 3% versus 4% can add to a lot of people at least $100, $150 a month,” Dickens calculates. “And while that may not seem like a lot for a month, when you add it up over a year, that means a lot of people get priced out of the housing market, or they can’t afford the houses that they wanted to originally.”

How will this help the economy and stop inflation?

“What they are expecting is that this will slow the economy’s increase short term so that inflation will come back under control, and therefore, and a longer term, two plus years, that the economy will be able to grow at a much more sustainable rate, without the inflation that we’re experiencing now,” said Dickens.

Even as recession worries remain among some experts, Dickens says in his opinion the recession this time will not be nearly the same thing people experienced in 2008.

“What we had in 2008 was a crash, and it had a great impact on employment, versus one of the problems right now is actually where we don’t have enough people to fill all the jobs we have. So unlike 2008, this should not be an unemployment recession, that and so we individuals probably will, most of us keep our jobs, and therefore we can continue to make payments. And so this is really, the Fed hopes, a manufactured decrease just to lower inflation,” Dickens expects.

Dickens says the best thing you can do right now is to make smart financial decisions, meaning live within or below your means and do what is best for your family.

One recent survey shows 7 in 10 consumers have changed how they save money in response to rising inflation.

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