Federal Reserve raises rates first time in three years to fight inflation

The Federal Reserve has raised interest rates for the first time in over three years, aiming to curb persistent inflation. The Federal Open Market Committee, led by Chairman Kevin Warsh, approved the hike amid rising concerns over global tariffs and high energy costs. Economist John Deskins from West Virginia University notes that inflation has remained above the Fed’s 2% target for half a decade, prompting this aggressive stance.

Deskins, who initially expected rates to stay steady, now anticipates further increases. He suggests the Fed may continue raising rates or adopt a more cautious approach by reassessing before each hike. While higher rates will help control inflation, they will also increase borrowing costs for consumers, affecting credit cards, vehicle loans, and mortgages.

The recent rate hike follows a period of lower rates between March 2022 and July 2023, when the Federal Funds rate rose from 0%, 0.25% to 5.25%, 5.50%. Deskins believes the Fed underestimated the impact of tariffs and high gas prices on inflation. As fuel prices and inflation remain elevated, consumers may adopt more conservative financial habits to manage the economic burden.