Fed Chair Raises Interest Rates a 0.50%
Brace yourselves the fed chair raised interest rates Wednesday and this time it is twice as much as it was in March. The federal reserve met Tuesday and Wednesday this week and with inflation continuing to hit 40-year highs interest rates will most certainly increase again.
In March as you may remember the fed raised interest rates a quarter of a percent (0.25%). This month it rose 0.50% and this will not be the last increase in 2022 the Fed Chair said there will be several more.
If you’ve been following this story you know inflation is at 8.5% which is way too high because the Fed’s goal is to keep inflation at 2%. The fed regulates inflation with their biggest tool available to the interest rates.
Currently, there is too much money circulating in the economy. Even though you may not feel that way there is and it’s all mostly from the pent-up demand as we emerge from the COVID-19 pandemic.
The problem is there is just not enough supply so prices are going up plus unemployment is at 3.6% meaning more people are back in the workforce and wages are also going up.
That is why you feel like even if you have money in your pocket it doesn’t get you anything because everything is too expensive. With that being said by the fed raising interest rates the cost to borrow gets more expensive so both consumers and businesses start to pull their money out of circulation and eventually prices start to calm down.
As a side note when prices slow down it eases demand and lets up some stress on the supply chain. It is worth mentioning there is a lag time between your new loans and this announcement for a time there will probably be high prices high interest and high inflation.
If the fed chair raises interest rates to the right percent everything will level out.