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For The Second Consecutive Time, The Federal Reserve Hikes Interest Rates By 0.75 Percentage Points To Combat Inflation

In an effort to curb runaway inflation without creating a recession, the Federal Reserve increased interest rates by 0.75 percentage points on Wednesday. In taking the benchmark overnight borrowing rate up to a range of 2.25%-2.5%, the moves in June and July represent the most stringent consecutive action since the Fed began using the overnight funds’ rate as the principal monetary policy tool in the early 1990s. The fed funds rate influences what banks charge each other for short-term loans, but it also affects a wide range of consumer products, including adjustable mortgages, auto loans, and credit cards. As a result of the increase, the funds’ rate has reached its highest level since December 2018.

In a series of statements since the June meeting, Fed officials telegraphed the increase to the markets. At the September meeting, Fed Chair Jerome Powell left the door about the Fed’s next move, stating that it would depend on the data. Stocks soared after the statement. Even if it means slowing down the economy, central bankers have stressed the importance of bringing down inflation. “As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation,” Powell said. Powell also said he does not think the economy is in recession, though growth was negative in the first quarter and was expected to be barely positive in the second quarter.



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