Interest rates likely to stay high, economist tells state Banking Commission

SIOUX FALLS — An economist told the South Dakota Banking Commission on Wednesday that the Federal Reserve is unlikely to lower interest rates anytime soon.

“I think higher for longer,” said Joseph Santos, director and professor of economics at the Ness School of Management and Economics at South Dakota State University.

The governor appoints the Banking Commission, which regulates the state’s banking industry.

The Federal Reserve is the central bank of the United States. Its federal funds rate is a benchmark that influences the rates people receive when they borrow and save money. The Fed began raising rates in 2022 and has kept rates high to counteract the rate of inflation, which soared to 8% in 2022.

Santos’ remarks come amid ongoing speculation about the Fed’s next moves. In March, the Fed declined to cut interest rates, citing uncertainties about the pace at which inflation is slowing. 

The Fed’s interest rate policies have had a noticeable impact on South Dakota’s economy.

Homebuyers have been particularly affected by rising mortgage rates, according to a new economic report shared Thursday from the South Dakota Secretary of State’s Office and Dakota Wesleyan University. Using the example of Mitchell, where the median home price is $284,000, the report says current interest rates have added $54,000 in costs over the life of a 30-year mortgage, compared to rates last year.

Rapid rise in South Dakota home prices is ‘not sustainable,’ economist says

Meanwhile, according to a report from the Dakota Institute, inflation-adjusted average home list prices surged 36.2% from the end of 2020 through the end of 2023.

The report from the Secretary of State’s Office quotes Trevor Dierks, president at First Dakota National Bank, talking about the effect of interest rates on the local economy.

“Since Mitchell and the surrounding areas compose more small businesses, interest rates can make it difficult for those small businesses to grow,” Dierks said.

At the Banking Commission meeting, Chairman Jeff Erickson said low unemployment and high demand for workers is driving wages up. And when workers earn more money, that can contribute to inflation by driving prices up.

“There are more jobs available than workers able to work,” Erickson told South Dakota Searchlight. “Why wouldn’t people expect more pay? But again, can businesses keep passing that onto their customers?”