Read: How do I prepare for a recession if I’m struggling to pay for rent, food and utilities? And the most vulnerable borrowers could also face even higher payday loan costs than usual. UpJohn Institute for Employment Research. It might be more difficult for small-business owners to secure affordable loans, and that could dampen new businesses, says Brad Hershbein, senior economist and deputy director of research at W.E. Home loans are expected to get more expensive (more on that below), but borrowers can also expect higher rates on personal loans and auto loans. But increasing the price of credit is one of the only tools the Fed has for combating inflation. The Fed’s approach “has the delicacy of a blunt ax,” says Kathryn Edwards, economist and professor at the Pardee RAND Graduate School. And when consumer spending declines, that puts downward pressure on prices throughout the economy. That might seem counterintuitive: What’s the point of fighting inflation if not to reduce consumers’ costs? But when the price of credit goes up, consumers become less likely to borrow, and thus, to spend. The intended effect is to make borrowing more expensive. To lower overall prices, the Federal Reserve is raising interest rates. So who is going to feel the pain? Borrowers
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