(PatrioticPost.com)- For the first time in more than 20 years, the Federal Reserve increased the rates for short-term interest by a half-percent, as part of the central bank’s efforts to trample the inflation that’s ravaging millions of Americans.
On Wednesday, the Fed announced this move, which was the most aggressive rate hike done in one meeting since back in May of 2000. Since that time, the central bank has chosen instead to increase interest rates in an increment of a quarter-percent at a time.
Not only did the Fed announce the massive increase in interest rates this week, it also suggested it will continue to increase costs of borrowing throughout 2022. This is all being done to reverse “easy money policies” that were implemented during much of the first year of the pandemic.
In addition, the Fed said it would continue to wind down its balance sheet, which currently sits around $9 trillion.
In an updated policy statement released on Wednesday, the Federal Open Market Committee (FOMC) said:
“The committee is highly attentive to inflation risks.”
The target for interest rates from the Fed is between 0.75% to 1.00%. Some officials with the central bank have been advocating for having the target raised much near to 2.5% by the end of 2022.
When the Fed increases interest rates like this, it’s felt in multiple areas of the economy. People who have variable rate credit cards instantly start paying more in interest per month on their outstanding balance. The same happens on any other variable-interest loan product.
In addition, the interest rates on new fixed-interest loan products rise as well. The Fed announced an interest rate increase back in March — the first time since the COVID-19 pandemic began. Since that time, the average fixed interest rate on a 30-year mortgage has increased to more than 5%, which represents a full point increase.
That’s a significant amount of extra money that people are forced to pay for their mortgage each month. Coupled with the fact that home prices are continuing to rise substantially, many Americans are being forced to rent — or live with family — rather than purchase a home of their own.
The statement the Fed put out on Wednesday said they would continue to pay attention to various geopolitical risks that are ongoing. One in particular is China’s shutdown due to COVID-19 outbreaks, that are “likely to exacerbate supply chain disruptions.”
The committee also said it would monitor financial implications of Russia’s invasion of Ukraine, which could put “additional upward pressure” on the inflation in America.
All members of the FOMC voted in favor of the interest rate hike.
The stock market has been extremely volatile over the last few months, and the news out of the Fed earlier this week caused them to slide significantly. Some financial experts say that this could be an opportunity to make money investing, though you would need a lot of extra money, and an appetite for swings, to do so.