Key facts
- The Federal Reserve raised its benchmark interest rate by a quarter of a percentage point.
- The rate hike aims to combat inflation, which has remained above the Fed's 2% target for over five years.
- Consumer prices rose 3.4% in August compared to a year earlier, with a monthly increase of 0.4%.
- The Fed's target rate is now in a range of 3.75% to 4.00%.
- Higher rates make borrowing more expensive for homes, autos, and credit card debt.
- Savers may see higher interest rates on savings accounts and certificates of deposit.
- Mortgage rates are influenced by 10-year Treasury yields, which have been rising.
- The rate on the benchmark 30-year fixed-rate mortgage rose to 6.76% last week.
The Federal Reserve increased its benchmark interest rate by a quarter of a percentage point, marking the first hike since the summer of 2023, in an effort to combat persistent inflation. Federal Reserve Chair Kevin Warsh stated that the central bank has "no tolerance for persistently elevated inflation," which has remained above the Fed's 2% target for over five years. Consumer prices rose 3.4% in August year-on-year, with a monthly increase of 0.4%. The Fed's goal is to slow consumer and business spending by raising borrowing costs, thereby reducing demand and cooling the economy. The new target rate range is 3.75% to 4.00%.