The Federal Reserve has raised interest rates for the second time this year as inflation and the Ukraine conflict continue to impact financial recovery from the coronavirus pandemic. The latest rate hike means higher borrowing costs, so consumers and businesses can expect to pay more for car loans, mortgages, and credit card balances.
FOMC Raises Federal Funds Rate by 0.5%
The Federal Reserve’s Federal Open Market Committee (FOMC) met Wednesday and raised interest rates for the second time in 2022. The FOMC agreed to raise the target borrowing rate by 50 base points – or a half-percentage point – to try and tackle rampant inflation.
Various conditions, including the Ukraine-Russia conflict, energy prices soaring, and the ongoing logistical logjams caused by the pandemic, have contributed to inflation reaching 40-year highs. The 0.5% rate hike is the largest incremental increase since 2000.
Inflation Continues to Hit Finances Hard
News of the rate hike will hit consumers hard. Americans are currently struggling under soaring costs at the grocery store and gas pumps. Thanks to war in Europe and a COVID outbreak in China, those hardships appear to continue.
“The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain,” the FOMC said in a statement. “The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”
Expect Your APR to Change Sooner Rather than Later
Lenders have been quick to respond to the increase in borrowing rates from the Federal Reserve. The special economic measures taken to combat the financial strain of the coronavirus pandemic kept rates artificially low for more than two years, with many banks eager to recoup losses through higher interest rates.
According to Citi analysts, markets have been struggling under COVID-19 rate freezes, leading to record inflation levels. “High inflation constrains the Fed, making easing monetary policy less likely if growth (or markets) fall,” Citi analyst Alexander Saunders told CNBC. “We have long argued that elevated inflation would put the Fed in a bind — when growth weakens they would not be willing to or able to ride to the rescue by loosening monetary policy.”
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