The Federal Reserve has raised interest rates yet again, ending a brief respite for inflation-weary consumers. The rate hike brings the current prime rate to 8.5%, the highest level since 2001. Here’s everything you need to know about the Fed’s 4th interest rate increase of 2023.
Another Prime Rate Increase After a Brief Pause
After a brief pause in mid-June, the United States Federal Reserve has once again raised interest rates. The Fed’s Federal Open Market Committee (FOMC) has raised interest rates for the 11th time since a new era of inflation emerged in March 2022 at the tail end of the COVID-19 pandemic.
The latest meeting of the FOMC saw the committee raising the target range of their key benchmark interest rate. The new benchmark is 0.25%, or 25 base points, higher than the previous figure, and it now currently sits at 8.5%.
In taking this action, the Board approved requests to establish that rate submitted by the Boards of Directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Chicago, St. Louis. Minneapolis, Kansas City, Dallas, and San Francisco.
The FOMC reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. This most recent prime rate update brings the benchmark interest rate to its highest level since early 2001 – more than two decades ago. The prime rate directly impacts credit card interest rates, as it is the interest rate the Federal Reserve charges top clients for borrowing money.
Inflation Remains Elevated
In its press release, the FOMC noted that the United States economy has expanded “at a moderate pace.” Additionally, jobs have grown robustly while unemployment has remained low. Despite this, however, inflation remains an issue – and one that’s elevated nature requires monitoring by the authorities.
“The U.S. banking system is sound and resilient,” the release states. “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.”
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