Wall Street had been expecting a half-point increase, but the latest consumer prices report released on June 10 prompted the Fed to take a more drastic measure.
Interest rates represent the cost of borrowing, so when the Fed raises the target rate, money becomes more expensive to borrow.
First, banks pay more to borrow money, but then they charge individuals and businesses more interest as well, which is why mortgage rates rise accordingly. This is one reasonhave been rising so rapidly in 2022, even as housing markets and prices start to slow down. When interest rates are higher, fewer people can afford homes and fewer businesses can afford to invest in a new factory and hire more workers. As a result, higher interest rates can slow down the growth rate of the economy overall, while also curbing inflation.can have similar impacts on the global economy
, whether by driving up their borrowing costs or increasing the value of the dollar, which makes it more expensive to purchase U.S. goods. But what it ultimately means for consumers and everyone else will depend on whether the pace of inflation slows as much and as quickly as the Fed has been forecasting.
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