Do higher rates slow down the economy? A zoo offers clues.

Leesburg Animal Park in Northern Virginia did a brisk business this fall during the Pumpkin Village Festival. Even with rainy weekends and an increase in admission prices, families come to the petting zoo, ride giant slides and weave through a maze of hay bales.

Shirley Johnson, the park’s owner, worried demand would decrease. Headlines all year warned of an impending recession as the Federal Reserve raised interest rates to cool growth and control inflation. That downturn did not materialize, but the uncertainty and higher financing costs have affected its investment plans.

“You can’t stick your neck out as far as you can,” she said. The park has postponed an expansion of the gibbon pen, a major project that would have given the playful primates more space but would also have required a loan.

The park experience is an example of a story playing out across the country. More than a year and a half after the Fed’s campaign to cool the economy, higher borrowing costs are clearly weighing on business investment and some interest rate-sensitive sectors, but consumers are spending much more than expected.

That resilience is what central bankers are keeping an eye on. For now, they are happy that the labor market and economic growth have held up, even though inflation has fallen substantially. This week, Fed officials opted to leave rates unchanged, pending whether they can stay that way. But they are also looking for further evidence that their measures are keeping the economy in check.

“Everyone is very pleased to see that we’ve been able to make some pretty significant progress on inflation without seeing the kind of rise in unemployment that is very typical of rate hikes,” said Federal Reserve Chairman Jerome H. Powell . Wednesday. “The same goes for growth.”

But he said economic growth, which is mainly driven by consumer spending, will likely have to slow before inflation fully returns to a normal pace. Interest rates now stand at about 3.4 percent, still well above the Fed’s target of 2 percent.

“What we do with demand will still be important,” he said.

Research on the economy shows that the effects of the Fed’s interest rate moves are clear in some places, mixed in others and not yet having a major impact elsewhere.

What has the Fed done to interest rates?

Since March last year, the Fed has increased its policy interest rate, which is now set at a range of 5.25 to 5.5 percent. That is above the level that central bankers consider necessary to slow the economy in the long term.

Higher Fed rates have also helped push up longer-term borrowing costs in the markets mortgage rates to almost 8 percent, a record in more than twenty years.

Nevertheless, growth remains a lot faster than economists normally think. The economy grew by 4.9 percent annually from July to September This is reported by the Ministry of Commerce last week. That has led to a debate over whether the Fed’s policies are succeeding in cooling the situation.

While economists think higher borrowing costs are having an effect, policymakers are looking at the data to get a sense of whether they are putting enough pressure on the economy to fully bring inflation under control.

“There is a question of calibration,” William English, a former Fed economist now at Yale, said of the higher interest rates. ‘But do they work? Certainly.”

Where are the effects of higher rates clear?

Higher interest rates tend to have a negative impact on stock prices: higher financing costs hurt corporate earnings prospects and push investment funds toward higher-yielding interest-bearing securities such as bonds. That effect is starting to manifest, even though markets have been volatile.

The S&P 500 fell for three consecutive months, from August through October, coinciding with a rise in longer-term market interest rates. Stocks are off to a stronger start in November as long-term interest rates have fallen in recent days.

Higher rates have caused the price to rise value of the dollarmaking imports cheaper for local buyers and making US exports abroad more expensive.

And steeper financing costs are slowing business investment. For example, investments in equipment have been negative three of the past four quarters, which could be a sign of rate increases at work. Caterpillar, the maker of industrial equipment, spooked investors this week when it reported a shrinking order book.

Where are the effects mixed?

While the Fed’s rate changes have made it more expensive to borrow to buy a house or a car, both markets have been experiencing shortages lately, making it difficult to see the effects.

Take cars. During the pandemic, there was a painful shortage of products for months as supply chain problems collided with strong demand. Supply has returned, but since then there has been a gap in the used car market much fewer new cars than normal were sold in 2021 and 2022.

Car buyers have retreated in recent months, but pent-up demand means sales have slowed, not fallen.

“It’s more resilient than we thought this year,” said John Lawler, chief financial officer at Ford Motor a recent earnings call. He noted that vehicles now cost about 14 percent of a consumer’s monthly disposable income, up from 13 percent before the pandemic, and Ford expects a gradual return to normal over the next 12 to 18 months.

The housing market is even more complex. Housing supply is limited, in part because people who locked in low mortgage rates are now reluctant to sell. Given the shortage of older homes on the market, existing homes are selling are far belowbut the sale of new houses does stabilized and at home prices skyrocket.

Where are the effects not visible?

If there’s one place where it’s hard to see higher interest rates, it’s the consumer sector.

The labor market has held up even as the Fed’s rate moves have weighed on some parts of the economy: hiring has slowed on average this year compared to last year, but it remains faster than what was normal before the pandemic. Wage increases have cooled, but are also faster than the pre-2020 pace.

That has allowed Americans to keep shopping even amid price increases and waning government relief from the pandemic. Spending rose faster in September than economists expected.

Strong consumption could be a concern for the Fed if it continues, because it could allow companies to keep raising prices to cover their own costs or protect profits without losing customers – which could fuel inflation continue to rise.

Take the zoo. It has made a number of medium-sized investments this year, such as improving the camel enclosure. But those projects cost money and daily activities have become more expensive.

To keep up, the company raised prices. They eliminated a cheaper children’s ticket for Pumpkin Village. Regular weekday visits also cost more: $17.95 for adults, according to the park’s website, compared to $15.95 at the end of 2021.

So far, consumers are still coming.

“People just want to be outside,” Ms. Johnson said. “It’s old-fashioned fun.”