The Federal Reserve in the US, also known as the Fed, has raised interest rates for the ninth time in a row to fight against high inflation. The Fed’s rate-setting committee voted unanimously to raise their benchmark interest rate by a quarter percentage point to just under 5%.
Interest rates refer to the amount of money that individuals and businesses have to pay for borrowing. So, if interest rates go up, it means people will have to pay more to borrow money, which can make things like car loans or credit card debt more expensive.
The Fed is trying to fight against inflation, which is when prices of goods and services rise. Inflation can be good in small amounts because it means the economy is growing, but if it gets too high, it can be a problem because people have to pay more for everyday items, like food and transportation. This particularly hurts those on low incomes who are already struggling to make ends meet.
THINK LIKE AN ECONOMIST!
Q1. Define the term interest rate.
Q2. Explain the impact that increasing the interest rate will have on consumers.
Q3. Analyse with the use of a diagram why an increase in the interest rate can help to curb inflationary pressure.
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