Why does the Fed raise interest rates? And how do those hikes slow inflation?

Orlando Mayorquin | USA TODAY | Jul 25th, 2022
Category: Education

  • Higher interest rates make borrowing more expensive for shoppers and companies, cooling demand with the aim of curbing inflation.
  • The Fed has raised rates five times this year.
  • The central bank is expected to hike rates for a sixth time on Wednesday by a big amount: 0.75 percentage point.

The cost of almost everything continues to rise at a blistering pace. 

While overall annual inflation slowed in September, it remained high at 8.2%, near a 40-year record. More alarming, the so-called core rate that excludes the volatile energy and food sectors accelerated, rising 6.6% for the largest 12-month increase in that index since August 1982 and demonstrating how widespread inflation has become.

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