Federal increase of interest rates

March 17, 2022
The Federal Reserve raises interest rates in order to curb inflation.

When an economy is overheated, raising the interest rate is a way to pull back and say, ‘I’ll hold on and postpone that spending.”

Laura Veldkamp, professor of finance and economics at Columbia University, on the Federal Reserve’s recent decision to raise the policy interest rate.
  • The Federal Reserve met this week with a focus on minimizing the longterm impact of inflation.
  • The decision: To increase the federal funds rate to a range of 0.25% to 0.50%, with anticipated increases in the coming months. This rate is the short-term borrowing cost for banks.
  • Their stated goal — a soft landing: "… to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2 percent objective and the labor market to remain strong."

Why It Matters: By raising borrowing costs (AKA interest rates on mortgages, credit cards, auto loans, etc.) the Fed hopes to slow down the market – with an intended result of slowing down inflation.

Why rates are going up (The New York Times)

Federal Reserve's press release outlining their plan

Federal Reserve to begin risky pursuit of a ‘soft landing’ (AP News)

by Jenna Lee,