Fed Reserve Raises Interest Rates Even Further

After pausing interest rates in June, the Federal Reserve announced this week that it has increased its benchmark interest rate to the highest level in more than 20 years, CBS News reported.

After its two-day policy meeting wrapped up on Wednesday, the central bank announced that the federal funds interest rate would increase by 0.25 percent, bringing the target rate to between 5.25 and 5.5 percent.

Fed Chairman Jerome Powell told reporters on Wednesday that additional rate hikes are possible this year if inflation does not continue to rapidly cool. Powell said the Fed policy does not appear to be “restrictive enough for long enough to have its full desired effects.”

The Fed Chairman said the central bank plans to continue its restrictive policy until inflation reaches the 2 percent target.

“The process still probably has a long way to go,” Powell added.

So far, the Fed’s aggressive rate-hiking policy appears to have been effective in cooling the worst inflation in 40 years by increasing the costs of borrowing for businesses and consumers. Since the Fed began tightening in March 2022, the costs of credit cards and car loans have surged while mortgage rates have more than doubled.

Additionally, the rate hikes have pinched banks and tech companies that rely on low-interest rates, forcing some companies to cut tens of thousands of jobs while putting others out of business.

Inflation is about half of what it was during its peak last year while consumer prices are rising at about a 3 percent annual rate. However, the Fed remains concerned that core inflation is remaining well above its 2 percent target, clocking in at 4.8 percent in June.

With consumer prices continuing to fall while job growth and consumer spending remain strong, there is concern that the economy is still hot enough to cause inflation to rebound. At the same time, too many interest rate hikes from the Fed will likely increase the risk of the country plunging into recession.