Federal Reserve plans to raise interest rates ‘soon’ to fight inflation: What that means for consumers and the economy
The Federal Reserve on Jan. 26, 2022, signaled plans to begin raising interest rates “soon” – possibly in March – in a bid to tamp down inflation before it poses a serious risk to the U.S. economy. A separate report released the next day showed the economy grew 6.9% in the fourth quarter of 2021. An interest rate hike would be the first time the central bank has increased its benchmark lending rate in over three years.
Lifting the borrowing costs consumers and businesses pay for loans has the effect of slowing economic activity, which in turn could curb inflation. But there are also concerns that it could put on the brakes too quickly. We asked Alexander Kurov, a finance professor at West Virginia University, and Marketa Wolfe, an economist at Skidmore College, to explain what the Fed is doing and what it means for you.
1. Why is the Fed raising interest rates?
Short-term interest rates in the U.S. are now essentially zero.