How raising interest rates helps fight inflation and high prices
The Federal Reserve raised its key federal funds rate 10 times since March 2022 — something it hasn't done as aggressively since the 1980s.
The Federal Reserve raised its key federal funds rate 10 times since March 2022 — something it hasn't done as aggressively since the 1980s.
The central bank hopes that by doing so, it can slow down the economy enough to moderate price growth.
But how does raising interest rates do that, exactly?
When you get a loan from a bank — for example, when you're buying a house — an interest rate is attached to that loan. The interest rate is the price you pay to borrow the money.
Banks need to borrow money, too. Instead of borrowing directly from other banks, they look to the Federal Reserve — America's central bank. Its primary role is to provide a safe and reliable financial system for the U.S. by maintaining deposit accounts for banks.
Rating: 5