Money & The Economy

Federal Reserve Hikes Interest Rates For First Time In Three Years

The Federal Reserve announced Wednesday it would increase interest rates in a series of hikes throughout 2022 amid an overheating economy and soaring inflation.

The Federal Open Market Committee (FOMC) announced it would increase federal-funds rates by a quarter percentage point to a range between 0.25% and 0.5% from its near-zero level.

The Fed, led by Chairman Jerome Powell, highlighted growing concerns regarding inflation after the FOMC meeting Wednesday, adding the war in Ukraine could further worsen pricing pressure.

“Inflation remains elevated, reflecting supply and demand imbalances to the pandemic, higher energy prices, and broader price pressure,” the FOMC said in a press release.

“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” it added. “The implications for the U.S. economy are highly uncertain, but in the near term, the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity.”

The committee’s last rate hike was in December 2018, CNBC reported.

The FOMC voted eight to one in favor of the rate hikes, with St. Louis Fed President James Bullard dissenting in favor of a larger, half-point percentage increase. Wednesday’s statement also indicated that the Fed might construct a plan to reduce its $9 trillion asset portfolio.

The fed-funds rate sets the borrowing cost put on consumers and businesses throughout the economy, The Wall Street Journal reported. Such borrowing could include rates on mortgages, credit cards, savings accounts, car loans and corporate debt.

The move to hike rates usually depresses consumers’ ability to spend money, while slashing rates promotes spending and borrowing, according to the WSJ.

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