The Federal Reserve raised its pivotal short-term interest rate by 0.75 percent for the second consecutive month Wednesday in an attempt to curb soaring inflation that topped out at a whopping 9 percent for the 12-month period ending in June.
The rate hike, which is the largest since 1994, is designed to have a trickle-down effect of raising the cost of borrowing across sectors, which is expected to cool off the over-heating economy. The relevant rate, called the fed funds rate, now sits at a range of 2.25 to 2.5 percent, approaching the long-run rate of 2.5 percent at which the central bank’s monetary policy is supposed to be neither accommodative nor restrictive.
At June’s Federal Open Market Committee meeting, Fed Chair Jerome Powell said, “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.” He noted that the Fed is taking a gradual approach to restraining inflation, adding that it “can't go down until it flattens out.”
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