The Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point on Wednesday to reach a range to 2.25% to 2.5%. The increase is the fourth since March and brings the interest rate to its highest level since 2018. The move comes as inflation, at 9.1%, has been increasing at its fastest rate in 41 years.
The aim of the central bank is to increase the cost of borrowing, for example for a car or a mortgage on a house, so that consumers are less likely to borrow and spend. The hope is then for the economy to cool and for inflation to slow down. But with the US economy already slowing down, the interest rate hike may be increasing the risk of inducing a recession.
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