Fed raises interest rates to combat rising inflation

Fed Raises Interest Rates to Combat Rising Inflation

The US Federal Reserve has raised interest rates to their highest level in 22 years in an effort to combat rising inflation. The decision to increase rates by a quarter-percentage point brings them to a range of 5.25% to 5.5%. This comes after the Fed paused its rate-rising cycle last month. US inflation has declined for 12 consecutive months and currently stands at an annual rate of 3%, down from over 9% in June of last year.

US Economy Remains Robust Despite Rate Hikes

Despite the 11 rate hikes implemented by the Fed, the US economy has remained robust. Hiring has slowed but remains strong, and the unemployment rate is still near a record low. Fed Chair Jerome Powell stated that the central bank would closely monitor economic data leading up to its next meeting in September. Powell emphasized that the Fed will make careful assessments on a meeting-by-meeting basis.

Concerns Over Rate Hikes and Impact on the Economy

Some Fed officials have expressed concerns that recent declines in the pace of price increases may be temporary. Fed Governor Christopher Waller stated that while the last inflation report was encouraging, policy decisions must be made based on a broader range of data. He warned that the full impact of the Fed's rate hikes may not yet be apparent in the economy, and there could be a moment where the effects are suddenly felt. The rate hikes have led to increases in mortgage rates and car loan prices. Rising rates are also making it more difficult for Americans to obtain credit, with the rejection rate for credit applicants reaching its highest level since June 2018. Auto loan rejection rates have also reached a record high.