![]() If so, the move would represent the fourth rate hike in five months.Ībout the only debate that exists is how far the Fed should go with increasing its interest rates to tame inflation. Several leaders within the central bank are leaning toward a hike of three-quarters of a percentage point, mimicking the action they took last month. Therefore, the Fed presumably must raise interest rates, but by how much? Several analysts have voiced their opinions on the matter.Ī Kaleidoscope of Forecasts for Interest RatesĪccording to the Washington Post, the Fed is set to raise interest rates this Wednesday in the latest effort to combat rising inflation. In just the first half of this year, this metric declined by 5.3%. In 2021, the dollar lost 6% of purchasing power. However, it’s not just the long-term erosion but the pace of its acceleration that investors should focus on. Therefore, the federal funds rate directly affects interest rates, the trajectory of which reverberates throughout the economy.Īccording to the latest data, the purchasing power of the dollar declined 12.92% (as a result of inflation) between the start of Covid-19 through June 2022, roughly equivalent to 13 cents on the dollar. Should the Fed decrease the rate, the money supply expands, reducing the cost to borrow money. Set by the Federal Open Market Committee (or FOMC), the federal funds rate is essentially the interest rate that banks charge each other for the purposes of borrowing or lending their excess reserves overnight.Īs the Fed increases the funds rate, it shrinks the supply of money, which in turn raises borrowing costs. However, it must do so carefully, leading to many analysts forecasting what the central bank will do this coming Wednesday.įor a quick recap, the Fed effectively controls key interest rates through influencing the federal funds rate. Invariably, then, the Federal Reserve has the unenviable task of modulating benchmark interest rates to cool escalating prices. With consumer prices rising 9.1% in June, American households are feeling the heat. One of the hallmark pain points of life in 2022 has been inflation.
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