The Federal Reserve raised the stakes in the fight to combat rising inflation on Wednesday, hiking interest rates by 0.75% in an effort to douse cold water on historic inflation.
The rate hike is the largest increase since 1994. This news follows a 0.5% benchmark interest rate increase in May. Experts expected the same increase for June, but a continued surge in costs forced the Federal Reserve to reevaluate.
“We at the Fed understand the hardship that high inflation is causing,” Federal Reserve Chairman Jerome Powell said in a press briefing on Wednesday. “We’re strongly committed to bringing inflation back down and we’re moving expeditiously to do so.”
The tactic by the Federal Reserve is an attempt to combat inflation while keeping the job market afloat. Federal policymakers expect that the Federal Reserve will raise interest rates several more times throughout the year. Though the hikes are necessary to slow spending, the move comes at a cost.
Americans will begin to experience higher borrowing costs, which should help slash inflation by pulling the reins back on the economy and slow demand. The rate hike will increase everything from credit card fees to mortgage rates and business loans.
This means that it becomes more expensive to borrow money. This takes the form of higher interest rate costs for credit, credit cards, car loans, home equity, mortgages and more. For example, a 30-year fixed-rate mortgage averaged more than 5% in early June, which is up from less than 3% a year ago, according to Freddie Mac.
The Federal Reserve admits that interest rate hikes will take time to sink their teeth into inflation, but even then, inflation will be at the mercy of a plethora of outside factors, including COVID, supply chain issues and the war in Ukraine.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship,” the Federal Reserve said in a statement on Wednesday. “The invasion and related events are creating additional upward pressure on inflation and are weighing on global economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions.”
Joshua Huff is a staff writer for AGRR magazine and glassBYTEs.