The US Federal Reserve will have to keep increasing its benchmark interest rate to a point that raises unemployment and brings inflation down from unusually high levels. The Federal Reserve interest rate or federal funds rate is 3% to 3.25% as of September 2022. This is the third consecutive rate hike of 0.75% and the fifth rate hike in 2022.
According to the Federal Reserve, the total interest rate increased since the start of the year is approximately 3%. It is also one of the largest increases in decades as the Fed focuses on fighting inflation levels that are at a 40-year high. In June 2022, US inflation reached a peak of 9.1%, and even with the increase in interest rate, inflation only dropped to 8.3% in August. Inflation in the US is still sticky, and some prices are expected to keep growing, which is against uncontrolled price increases.
The Federal Reserve raised its key interest rate by 0.75 percentage points in September, raising borrowing costs for Americans. Despite economic difficulties such as Russia's invasion of Ukraine and the ongoing supply chain issues, the Fed’s short-term rate would have to be higher for a longer duration than initially anticipated.
In an effort to control the spiraling prices in the largest economy in the world, the Federal Reserve effected a large hike in interest rates. Since March 2022, the bank increased borrowing prices to cool the economy and reduce price inflation. This will be challenging for many people because it raises the cost of borrowing. Increasing interest rates will reduce the probability of high inflation continuing for an extended period, which would cause households more difficulty over an extended period.
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