All eyes are on the Federal Reserve today, which is expected to announce the biggest increase in benchmark interest rates since 1994.
The announcement is scheduled for 1 p.m. The benchmark rate is what banks charge each other for overnight lending of funds held at the Federal Reserve. Wall Street initially expected a 50 basis point increase, or 1/2 of 1%. Now, most observers expect the Fed to raise its benchmark by 75 basis points, or 3/4 of 1%.
This decision is a way to fight against inflation. The Fed needs to be careful. If you raise the rate too little, inflation continues to rise. Raise it too much and there is danger of recession and job losses.
What does a reference rate increase mean for you and your family? Well, on the plus side, that means bank savings accounts and bonds will pay a bit more, but not enough to notice. But it also means lenders won’t be able to borrow as cheaply as before, so they’ll pass those costs on to the public. Mortgages, car loans, credit card rates, etc., will all cost more.
Raising the benchmark rate is not an instant cure for inflation. And there will likely be more rate hikes before current inflation is brought under control. But that’s something we’re going to have to deal with. It will pay off later with lower prices at the pump, grocery store and retail outlets.
Print Title: EDITORIAL / Rate Hike: Fed Should Act Against Inflation Today