economy

Central Bank Raises Interest Rates to Fight Rising Prices

The Federal Reserve increased the cost of borrowing by 0.25%, signaling more hikes ahead to combat inflation.

By Piggy PressSep 16, 20262 min read 2 new words

In simple terms

When the Fed raises rates, borrowing becomes more expensive for everyone. If you're thinking about a mortgage, car loan, or credit card, you'll likely pay more interest. For savers, the flip side is that savings accounts and CDs earn higher returns.

The Federal Reserve—the bank that sets the nation's interest rates—voted unanimously to raise rates by a quarter point (0.25%). This is the benchmark rate that banks use as their starting point when they lend money to each other and to consumers. When this rate goes up, borrowing becomes more expensive: mortgages, car loans, and credit card interest all tend to rise.

The Fed took this step to fight inflation, the term for when prices of everyday goods keep climbing. Higher interest rates make people less likely to borrow and spend money, which can cool down the economy and bring prices back down. The Fed also signaled it plans to raise rates at least once more before the end of the year. This move comes as the new Fed chairman, Kevin Warsh, takes the helm—a position that may test his relationship with President Trump, who has historically preferred lower interest rates.

Fun fact

The Fed's benchmark rate is now between 3.75% and 4%—roughly double what it was just a few years ago. The last time rates were this high was in 2008, right before the financial crisis.

Economy

Source: Bloomberg Markets