Fed raises interest rates again to combat inflation, borrowing more expensive

Cash money
Posted at 10:20 AM, Nov 02, 2022

The Federal Reserve announced Wednesday that federal funds interest rates will go up three-quarters of a percentage point.

It is the fourth jumbo rate hike in six months.

The rate hikes make major purchases more expensive. An average car buyer would pay about $1,000 in extra interest due to the rising rates.

It's possible the Fed will continue raise interest rates as inflation rages. The Federal Reserve said its goal is to return the inflation rate to 2%. The rate has hovered around 8% in 2022.

"In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments," the Federal Reserve said.

The risk of raising interest rates, experts say, is that it could cause the U.S. to slip into a recession.

The effective federal interest rate is now at 4% for the first time since late 2007. Interest rates peaked at 5.25% in late 2006 and early 2007, roughly a year before the U.S. entered a recession.

From 2009 through the middle of 2017, interest rates remained below 1% before reaching a peak of around 2.42% in 2019.

In response to the pandemic, the Fed lowered rates nearly to 0 until early this year. But with the highest inflation in over four decades, the Fed has responded with a rapid succession of rate hikes.