Federal Reserve Raises Interest Rate

The Committee decided to raise the target range for the federal funds rate to [between] 4-1/2 to 4-3/4 percent.

The Federal Reserve announcing a quarter-point hike in interest rates. This increases the price for both businesses and individuals to borrow money.

Why It Matters: This federal funds rate helps set other borrowing rates, such as interest rates for credit cards and car loans. The Federal Reserve, also referred to as the U.S. Central Bank, increased the rate in an attempt to counter inflation (an overheating economy) by slowing down demand. The idea is that raising interest rates also slows down the economy.

• Inflation hit a 40-year high last year. In order to curb rising prices, the Fed has undergone its "most rapid pace of rate increases since the 1980s" (The Wall Street Journal).
• Officials noted that inflation has eased and there have been significant job gains in recent months. However, due to the war in Ukraine which "is contributing to elevated global uncertainty," there is still a risk to inflation. The Committee warned that they anticipate "ongoing increases" in the future. Their next meeting is in March.

Federal Reserve issues FOMC statement (The Federal Reserve)

Fed Approves Quarter-Point Rate Hike, Signals More Increases Likely (The Wall Street Journal)