WASHINGTON, D.C. – The Federal Reserve is keeping interest rates the same after they’ve raised them significantly over the past couple of months to combat inflation. Keeping these high federal interest rates the same means people will still feel the impact of higher prices on many goods and services because it’s more expensive to borrow money. People are less likely to make those impulse buys. But they’re keeping the rate as it is for now just to assess how the economy is reacting to the previous rate hikes.
Think of the Federal Reserve like the Goldilocks Principle: they want to keep the economy running not too hot, not too cold but just right. In the past couple of months, the Reserve has hiked up interest rates ten consecutive times climbing to about the five percent rate right now. When the Federal Reserve was raising these interest rates, it impacts a variety of things in the economy like lending rates for credit cards, mortgages and business loans. By making it more expensive to borrow and invest, the Federal Reserve is trying to cool down demand in the economy and therefore reduce the upward price pressure.
Even though they are keeping the raised rate the same right now, the Federal Reserve Chair Jerome Powell said they might raise them again later this year just depending on economic forecasts.
“We remain committed to bringing inflation down to our two percent goal and to keeping longer term inflation expectations well anchored,” said Powell. “Reducing inflation is likely to require a period of below trend growth and some softening of labor market conditions. Restoring price stability is essential to achieving maximum employment and stable prices in the longer run.”