Duke economist calls Fed's latest rate hike a mistake, warns of recession

DURHAM, N.C. (WTVD) -- The Federal Reserve extended its year-long fight against inflation by raising interest rates by a quarter of a percentage point Wednesday. The decision comes in the aftermath of two regional bank failures, the takeover of Credit Suisse and a chaotic couple of weeks on Wall Street.

The rate hike is the ninth straight in a year. Following the announcement, ABC11 spoke with Duke professor of finance, Dr. Campbell Harvey, who called the move a mistake.

"I believe the last time was a mistake also," Harvey said. "So, I was on record of saying that the Fed should pause, and they should have paused today also for a very simple reason-I want to know how many banks are at risk right now."

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Harvey warned that consumers can expect banks to scrutinize loan applications more closely following the rate hike.

"The Fed has tightened the screw a little more," Harvey said. "And, that's going to mean not just higher rates on your loan, but more scrutiny. Anytime there is a hint of a systemic crisis, these banks must become more conservative. It's a lose-lose for the consumer. So, their costs go up and potentially it jeopardizes economic growth."

Harvey said this latest hike makes him even more pessimistic about the economy.

"I was hopeful that we could achieve the so-called soft landing, which means slower growth or maybe a technical recession, maybe worse in certain areas of the country than other areas," Harvey explained. "But as The Fed pushed and pushed and pushed, it weakened the bank system. So, the fact that we've got all this uncertainty-the specter of a banking crisis-all of this makes me much more pessimistic and increases the chance that we go into a deeper recession."

The Federal Reserve's next meeting is set for May.