Fed Increases Interest Rate by 25 Points Making Rate Highest Since 2007

The Federal Reserve has raised interest rates by 25 basis points, marking the ninth consecutive increase and bringing the benchmark rate to its highest level since 2007. The move is intended to curb inflation by making borrowing more expensive, slowing the economy, and potentially leading to a recession. The hike will affect the cost of credit cards, auto financing, and loans, with the central bank increasing the federal funds rate from nearly zero in March 2022 to 4.75% to 5%.

Despite recent banking failures, such as Silicon Valley Bank, the Fed remained focused on price stability, their “overarching focus,” according to Federal Reserve Chair Jerome Powell. Although the year-over-year inflation rate has slowed to 6%, it is still above the Fed’s preferred rate of 2%.

CNBC reports rate hikes are considered a “blunt instrument” since they affect the entire financial system. Their effects are challenging to measure since it takes several months for the economy to absorb them fully. As each rate hike adds to the risk of a recession, the Fed has slowed its increases somewhat, opting for 25 basis point hikes in February and March instead of the 75 basis point increases enacted in late 2022. However, Powell reiterated that inflation remains a top priority, stating in his semiannual report to Congress that “restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”

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