Federal Reserve Impact on Rates-1

How does the Federal Reserve impact financing rates?

Date: July 27, 2022

The Federal Reserve, or the “Fed” is the central bank of the United States. The Fed is tasked with maintaining a certain level of stability in the country’s financial ...

 

The Federal Reserve, or the “Fed” is the central bank of the United States. The Fed is tasked with maintaining a certain level of stability in the country’s financial system. One of the Fed’s most influential tools is the ability to increase or decrease the discount rate, the rate at which other banks can borrow directly from the central bank.

If the Fed increases the discount rate, it is increasing the cost of borrowing, making credit and investment dollars more expensive. This tactic is used to slow an overheated economy and slow inflation. A reduction in the discount rate lowers the cost of credit and investment which can stimulate a stagnant economy.

During COVID, the U.S. enjoyed historically low interest rates. More recently, the Fed has been increasing interest rates to fight inflation. On June 15, the Fed raised rates by 0.75% - the largest single increase in nearly three decades. This was on the heels of a 0.50% increase in May. Additional rate increases will be considered over the remaining four policy-setting meetings scheduled for this year, which are scheduled to occur on:

• July 26-27, 2022
• September 20-21, 2022
• November 1-2, 2022
• December 13-14, 2022

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