How raising interest rates helps fight inflation and high prices

The Federal Reserve announced Wednesday an increase in its key interest rate by 0.75% to help fight inflation and get price growth under control.

The Federal Reserve announced Wednesday an increase in its key interest rate by 0.75% to help fight inflation and get price growth under control.

It's the third time in a row the Fed has raised rates by 0.75%, and the fifth interest rate hike of the year. The Fed hopes that by raising the interest rate, it can slow down the economy and cause prices to come back down.

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.

https://www.nbcnews.com/business/economy/how-raising-interest-rates-helps-fight-inflation-high-prices-recession-rcna33754


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