Interest rate hike could come as soon as March
Federal Reserve Governor Lael Brainard on Thursday said the central bank would be in a position to start what could be several interest rate hikes this year “as soon as” it completes winding down its bond purchases, expected to happen in March.
“The (Fed’s policy-setting) committee has projected several hikes over the course of the year,” Brainard said in testimony before the Senate Banking Committee.
What happens when the Fed raises rates?
When the Fed raises the federal funds target rate, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments.
Those who can’t or don’t want to afford the higher payments postpone projects that involve financing. It simultaneously encourages people to save money to earn higher interest payments. This reduces the supply of money in circulation, which tends to lower inflation and moderate economic activity—a.k.a. cool off the economy.
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