In an effort to curb rising prices, the Federal Reserve hiked interest rates by another 0.75% Wednesday afternoon, the same amount as its last move in June. Following the announcement, markets surged, with the Dow Jones Industrial Average rising by more than 450 points.
The Federal Open Market Committee members unanimously voted to proceed with the hike.
In an effort to reduce consumer and business spending, the Fed has now increased borrowing costs in America over four straight meetings. The objective is to stop inflation from rising at rates not seen since the early 1980s.
The Fed implemented a number of emergency steps to bolster the economy when the pandemic first struck, including lowering its interest rate to zero and making borrowing money almost free. However, even if that policy boosted consumer and business spending, it also fueled inflation and contributed to current economic conditions.
The Fed is now trying to “remove the punch bowl” and slow the economy by raising interest rates since the economy no longer requires assistance.
Currently, short-term borrowing rates range from 2.25 percent to 2.50 percent, similar to levels from 2019.
However, investors are worried overall that the Fed’s policy of raising interest rates may cause the economy to enter a recession, but Chairman Jerome Powell stated in a press conference, “This is a very strong labor market, it doesn’t make sense that the economy would be in a recession with this kind of thing happening.”
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