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Why Interest Rates Are On the Rise

Last Updated

July 11, 2022

Written By

Tom Dambra, Family First CEO

In our current financial landscape, we are seeing rates and the costs of goods rise around us. This can be overwhelming, and even worrisome, for many, but it’s important that you understand why this is happening, and what the end goal is. Interest rates are on the rise, and this is why.

When it comes to short-term interest rates, like those you pay on cars & personal loans, the major driver behind them is the Federal Reserve’s Fed Funds Rate. The Federal Reserve uses 2 major points of information to decide what this rate should be: the unemployment rate, and the inflation rate.

The Unemployment Rate

Currently, “unemployment” is at a decade-low number.  In the eyes of the Fed, this is for the most part a good thing and would not cause them to quickly move interest rates up or down. What is of greater concern to me, personally, is the labor participation rate.  This rate measures the number of people over the age of 16 who are currently employed or actively seeking employment.  This number has been steadily decreasing since the turn of the millennia in 2000. 

Inflation Rate

We all know that the cost of “stuff” has been increasing over the last year. Many of us first noticed this in the check-out lines at our local grocery stores. When the inflation rate was measured this past June, the increase was 8.6% over a one-year period.  This is one of the highest increases we have seen in over 50 years, and this is what has the Fed concerned. The Fed is typically looking for an inflation rate of just 2% to leave short-term rates alone.  Unfortunately, we have a long way to go before reaching their 2% goal, which means they will keep raising short-term rates until we get closer to that target.

On the longer end of interest rates are those you would pay for a mortgage. Most long-term, fixed-rate mortgages are based on the movement of the 10-Year Treasury bond. This takes a long-term approach, looking at where rates could be 10 years from now based on the best information we currently have. When short-term rates have a higher yield than long-term rates, this is referred to as an “inverted yield curve”. These are often a precursor to a recession, which economists (and more locally, your credit union team) are keeping a close eye on these days.

As we continue to emerge from the COVID-19 pandemic, the economy looks much different than it did just a few years ago but you can rest assured that through it all Family First is still here to help guide you through these turbulent times.


Tom Dambra became the CEO of Family First Credit Union in 2015. He earned his bachelor’s degree in accounting from Boston College and his MBA from RIT. He has decades of experience in the banking industry and held the Director of Finance position on the Penfield Business Chamber’s Board of Directors for six years. Tom is a Rochester native and is an active member of the community.

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