To tackle inflation, the central bank hiked interest rates by 0.75 percent yesterday, the most significant increase since 1994.
What does that mean? Increased interest rates make it more expensive to borrow money, which in turn slows economic activity. Slowing the economy is exactly what it sounds like—but it’s one of the few ways to slow the accelerating inflation rates.
Stopping inflation is the goal. The Biden administration and the central bank are in a bad situation. After downplaying the crisis for a year, along with poor monetary policy, it’s clear that inflation won’t resolve itself. Tipping the economy into a recession is a path the Federal Reserve is willing to take.
More interest hikes will follow. This is part of the central bank’s plan to fight inflation over the next year. Spending will decrease, layoffs will happen, and many predict a recession.