Federal Reserve raises interest rates

July 27, 2023
$1 bills

We have to be ready to follow the data, and given how far we’ve come, we can afford to be a little patient, as well as resolute, as we let this unfold.

Federal Reserve Chair Jerome Powell on Wednesday. Federal Reserve officials announced a quarter-percentage-point hike to a key borrowing rate, with the potential of further rate hikes later this year.

What to Know: The Federal Reserve (a.k.a., the nation's central bank) increased a key borrowing rate – the "federal funds rate" – to the 5.25%-5.50% range, bumping rates to their highest level in 22 years. This action is intended to help slow inflation, and the recent announcement is the 11th rate increase since March 2022.

Why It Matters: The federal funds rate helps set other borrowing rates, such as the interest rates for credit cards or car loans. Wednesday's rate increase will likely make it more expensive for people to borrow. The Federal Reserve is attempting to counter inflation (an overheating economy – when your money buys you less) by slowing demand, and therefore, slowing down the economy enough for inflation to decrease.

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by Jenna Lee,