The Federal Reserve on Wednesday raised interest rates to their highest level in more than two decades, according to NBC News.
What’s going on: The central bank increased the target range for the federal funds rate by 25 basis points to 5.25% to 5.5%, the highest level since 2001.
Why it’s important: “Though consumer prices have declined for 12 straight months, in June, consumer prices increased 3% year on year. Even though that’s the lowest the annual inflation rate has been in more than two years, it’s still too high for the Fed, which is looking to wrestle increases down to about 2%.”
- “Supercore” inflation, which excludes shelter, gas and food costs, has remained at the 4% annual rate—far too high for the Fed’s liking—for more than two years.
- The bank’s aim in raising interest rates is to make borrowing and investing costlier, reducing demand for labor, goods and services in the economy.
Recession revision: “After Wednesday’s interest rate announcement, [Federal Reserve Chairman Jerome Powell] affirmed the central bank no longer expects a recession to occur as a result of the increases, adding that it could bump up the key interest rate even further.”
The challenge: U.S. workers are relying on the Fed to “balanc[e] unemployment and inflation. … The Fed believes it can slow the economy to reduce inflation without causing people to lose their jobs en masse.”