Fed raises interest rates, hints at pullback

Federal Reserve building
The Federal Reserve building in Washington, D.C. (Shutterstock)

The Federal Reserve raised its short-term interest rate by three-quarters of a percent on Wednesday.

It was the Fed’s sixth rate increase this year and the fourth straight increase of three-quarters of a percent.

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said in a Tuesday afternoon statement, which cited the economic toll from the war in Ukraine as one of the factors. “The Committee is highly attentive to inflation risks.”

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The raise brings the interest rate up to a targeted range of 3.75 to 4 percent—its highest level since January 2008. But recently, the Fed also hinted it might slow the pace of interest rate hikes. Many economists expect that the next interest rate hike, predicted to be in December, will be half a point, rather than three-quarters of a point.

What does slowing interest rate hikes mean? Higher interest rates make it more expensive to borrow money. Decreasing the size of the interest rate hikes would mean the Fed‘s policymakers think the interest rate is getting high enough to possibly slow the economy and reduce inflation.

Still, the Fed said that in order to drop inflation, consumer spending and the job market both need to shrink. Both have remained stubbornly strong.

This story originally appeared in WORLD. © 2022, reprinted with permission. All rights reserved.

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