Cape Girardeau bankers on expected new Fed interest rate hike

Federal Reserve Board is expected to announce resumption of interest-rate hikes during its scheduled two-day meeting Tuesday, July 25, and Wednesday, July 26, despite data showing inflation cooled sharply in June.

Local bank executives surveyed by the Southeast Missourian say they are not surprised.

Jay KnudtsonFirst Missouri State Bank

Jay KnudtsonFirst Missouri State Bank

"The most recent Fed pause will most likely give way to another 25-basis point increase this week. This will put interest rates at levels that many consumers have never seen," said Jay B. Knudtson, executive vice president of First Missouri State Bank. "While the job market remains strong, it seems inflation continues to be the absolute driver behind these rate increases. That said, I believe we are in for a bumpy 12-18 months as banks deal with liquidity challenges and 'credit crunches' continue to loom and escalate."

James LimbaughMontgomery Bank

James LimbaughMontgomery Bank

"It's not my nature to be pessimistic but the headwinds of high interest rates especially in home financing, higher than normal inflation limiting discretionary spending and higher fuel prices, all impact the opportunity for Chairman (Jerome) Powell's 2% desired inflation target to become a reality," added James Limbaugh, Montgomery Bank executive vice president and Cape Girardeau regional president. "This new 25-basis point increase, coming this week, has already been baked into the market. Then, I think there will be a pause."

Kevin GreaserFirst Midwest Bank

Kevin GreaserFirst Midwest Bank

"The anticipation is, after this week, is for yet another rate increase at the September Fed meeting. Hopefully, these will be sufficient to continue to slow the trend in inflation," commented Kevin Greaser, community bank president of First Midwest Bank. "There's been an awful lot of rate increases. I lived through what happened in 1982 when the prime rate got up to 20%. All these hikes within the last 12 months show Powell's determination to get to 2% inflation and I don't know that we'll get there."

Knudtson has the last word.

"Obviously, Fed chairman Powell is more concerned about inflation than higher interest rates and I would ask him to explain that priority to small-business owners who have loans skyrocketing from 4.5% to somewhere around the 9.0% range. Those businesses didn't have that built into their business model and some simply won't make it," he said.

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