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Cal Poly professor expects inflation to rise, possibly affecting renters, homeowners

Posted at 9:22 AM, Mar 09, 2022

The United States is facing historic inflation rates, and one local economist says it is time to consider those big financial moves before rates skyrocket.

“If I had to refinance right now and if I were speaking with my wife, I would do it right now because interest rates, in my opinion, are going to go up,” said Cal Poly economics professor Eric Fisher.

Professor Fisher expects the chairman of the Federal Reserve Bank to put for an interest rate increase this month.

“So even though 4.4% is higher than 3%, now's the time to get out of a loan when... before inflation expectations can continue to go up,” explained Fisher.

If a home buyer takes out a $500,000 loan to purchase a house right now, their payment for a 30-year fixed mortgage would come out to around $2,500 a month.

“If interest rates go up by two percentage points from 4.4 to 6.4, then your payment will go up to $3,100 per month and that $600 extra is simply paying off the interest for the advertised mortgage,” explained Fisher.

Fisher said Chairman Jerome Powell announced that rates will be going up by at least half a percent, which signals that he is trying to control inflation expectations because inflation can act like a self-fulfilling prophecy.

Fisher says the last time America had a long-term bout of inflation was in 1974 "and we had inflation all through the second half of the 1970s until 1983,” he added.

The government ran up big deficits, bailing people and businesses out during the COVID-19 pandemic.

“The Fed last year decided essentially to buy up all of the extra debt that the covered deficits were creating and when the Fed buys up government debt, that it creates a big increase in the money supply,” explained Fisher.

It led to historic rates of inflation.

“So once inflation gets started, there's an element of self-fulfilling expectations and it takes, it could take eight or nine years for it to stop.”

Fisher adds that the financial forecast is still uncertain because of the restrictions placed on Russia, which will continue to impact the global financial community.