The Federal Reserve has once again raised its key interest rate, marking the 11th increase in the past 17 months. This quarter-point hike brings the short-term rate to approximately 5.3%, the highest level since 2001. The purpose of these rate hikes is to raise the cost of mortgages, auto loans, credit cards, and business borrowing in order to reduce demand for goods, services, and labor. NBC News reports that this latest increase is expected to have the same effect.
Inflation in June was only 3% compared to the previous year, significantly lower than the peak of 9.1% in June of last year, and closer to the Federal Reserve’s target of 2%. However, by raising the interest rate, the Federal Reserve is indicating that there are still dangers to be addressed. Underlying inflation, specifically the “core” inflation which excludes volatile food and energy costs, rose by 4.8% in June compared to the previous year. The AP suggests that as long as these measures remain high, the Federal Reserve will continue to keep interest rates high and potentially raise them further.
In June, policymakers stated their intention to implement two additional rate hikes, including the one that took place on Wednesday. The Wall Street Journal anticipates that investors will be listening for hints during Jerome Powell’s press conference, indicating whether the next meeting of the central bank will be a “live” one, implying that a rate hike will be strongly considered. (Read more Federal Reserve stories.)
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