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The Impact of Federal Reserve Rate Hikes – Daily Flash Briefing

June 17, 2022 by Bautis Financial
The Impact of Federal Reserve Rate Hikes

The central bank's commitment to bringing down inflation means interest rate hikes may happen at a quicker pace than originally expected.

On Wednesday, the Federal Reserve voted to raise the benchmark interest rate by thee-quarters of a percentage point to a targeted range of 1.5%-1.75%, a 50% greater increase than the central bank had initially signaled it was going to make for June.

The move comes after inflation hit a new, 40-year high last week, with consumer prices reaching an 8.6% increase over where they were a year ago.

Today, Federal Reserve Chairman Jerome Powell reiterated the central bank’s commitment to bringing down inflation, saying it’s essential for the global financial system.

“The Federal Reserve’s strong commitment to our price stability mandate contributes to the widespread confidence in the dollar as a store of value. To that end, my colleagues and I are acutely focused on returning inflation to our 2% objective,” Powell said in introductory remarks for a Fed-sponsored conference on the global role of the U.S. economy. 

As evidenced in his statement, Fed officials target 2% inflation as healthy for a growing economy and will continue raising rates until prices return to that range. Some Fed watchers now believe the rate hikes could happen at a quicker pace than originally expected. 

Banks use the rate to set borrowing costs for short-term loans they provide to each other, but the interest rate increase also feeds though to a multitude of consumer products like credit cards, home equity loans and auto financing.

Related: How Building a Bond Ladder Can Hedge Against Rising Interest Rates

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Category: Finance NewsTag: federal reserve, Interest Rates, Rate Hike
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