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Federal Reserve Raises Interest Rates, Expects More Raises To Come Due To Inflation

Interest Rates [Photo: Property118]
Interest Rates [Photo: Property118]

The Federal Reserve raises the interest rates and expects more raises to be coming soon. This initiative was made as the Federal Reserve attempts to overcome inflation.

Federal Reserve [Photo: Business Insider]

Federal Reserve [Photo: Business Insider]

The first Federal Reserve meeting this year happened on January 31 until yesterday, February 1, 2023. Prior to this, the most recent meeting happened on December 13 to December 14 last year. During that meeting, the interest rates were raised by half a percentage point. This resulted in a push in the interest rate from 4.25% to 4.5%. Officials from the Federal Reserve decided they would need to raise the interest rates more than what was initially planned to overcome the worsening inflation.

According to Munson, the Federal Reserve is in charge of the U.S.’s monetary policy since it is the country’s central bank. This means that the Federal Reserve establishes the interest rates and regulates the supply of money. The Federal Reserve advocates stable prices in the U.S. economy and employment. If prices are stable, it means that the Federal Reserve keeps the inflation in check.

To keep the inflation in check, the Federal Reserve utilizes the federal funds rate. These rates are used by banks to charge each other for overnight loans made. When these rates rise, banks usually pass on their additional expenses. The Federal Reserve does not directly control all the interest rates in the U.S. However, when the federal funds rate rises, other interest rates usually rise as well. Other interests include the mortgage rates, credit lines, and other loans.

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What is Inflation

According to Oner, inflation is generally a raise in prices that affects several goods and services like food, rent, and gas. Inflation can be caused by many factors like goods or services being availed when the supply does not meet the demand. This gives the goods producers and service producers the opportunity to raise prices with little to no loss in sales.

In addition, inflation can also happen when there is a shortage of supply. When there are not enough goods to meet the demand, producers or retailers may raise the wholesale prices of the goods. In turn, consumers will be purchasing these goods at a higher retail price.

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