The Clap
The Federal Reserve raised interest rates in an effort to tame decades-high inflation.
The deets
The Fed raised rates by 0.50%, the sharpest increase since 2000 & the second of seven expected rate hikes in 2022. The Fed also announced plans to taper its $9 trillion asset portfolio starting June 2022, hoping it aids higher rates in taming inflation.
How will this lower inflation?
Raising rates makes loan borrowing more expensive for businesses & households, which leads to decreased spending & demand in the economy. Low enough demand leads to price stability.
Tapering is meant to reduce the rate of injecting money into the economy, hoping to ease off rising price pressures.
Why this matters
If the Fed moves too fast with raising interest rates, it risks businesses laying off people or tipping the economy into a recession. Move too slow, & inflation likely won’t go away, or even worse, stagflation takes place.
