if the fed wishes to reduce the federal funds rate it could

While the Fed’s statement didn’t specify a time when it plans to raise rates, Chair Jerome Powell said “the committee is of a mind to raise the federal funds rate at the March meeting, assuming that the conditions are appropriate for doing so. The Fed sets a target range for what is called the “ federal funds rate.” This rate acts like a benchmark for all interest rates in the economy. So the Fed has to act quickly before it’s too late.

And the longer it lasts, the harder – and more painful for consumers and businesses – it is going to be to bring it back to a more sustainable 2%. The Fed can ill afford to allow this to continue because if higher inflation becomes entrenched, it would damage the economy. High inflation means the prices people pay for goods and services are continually going up – especially for basic items like meat and gasoline, as well as for manufactured goods like cars. This is the highest rate of inflation recorded in the U.S. For 10 months in a row, inflation has been above the Fed’s 2% target and reached an annual pace of about 7% in December. The big problem for the Fed now is that U.S. As a reminder of how bad things were back then, over 40 million workers – a quarter of the American workforce – filed for unemployment in the first few months of the pandemic, a staggering number with no precedent in the job market.Īlthough the recession was short-lived – lasting only two months – and the economy has mostly recovered, the Fed has kept rates at rock bottom because many workers and businesses still need support as the pandemic continues to rage. The Fed quickly cut rates to zero at the beginning of the COVID-19 crisis in March 2020 in an attempt to soften the blow of the sharp recession that began that month as the U.S. We asked Alexander Kurov, a finance professor at West Virginia University, and Marketa Wolfe, an economist at Skidmore College, to explain what the Fed is doing and what it means for you. But there are also concerns that it could put on the brakes too quickly.

Lifting the borrowing costs consumers and businesses pay for loans has the effect of slowing economic activity, which in turn could curb inflation. An interest rate hike would be the first time the central bank has increased its benchmark lending rate in over three years. A separate report released the next day showed the economy grew 6.9% in the fourth quarter of 2021. 26, 2022, signaled plans to begin raising interest rates “soon” – possibly in March – in a bid to tamp down inflation before it poses a serious risk to the U.S.

If the fed wishes to reduce the federal funds rate it could