Federal Reserve Increases Interest Rates by 0.25%: Impacts on Borrowing, Saving, and Investment

Policymakers at the Federal Reserve (Fed) have concluded their two-day meeting and decided to raise interest rates by 0.25%. The decision, which was widely expected, led to a brief surge in the markets, but later Wall Street rebounded following comments from Fed Chairman Jerome Powell.

United States Federal Reserve (Photo: Investopedia)

Investors were anxiously waiting for the Fed’s decision on interest rates on Wednesday, and share prices were lower in the morning before the announcement was made. Despite a report from the Labor Department showing that job openings had ticked up, the Fed still chose to follow through with a quarter percentage point hike. In a statement, the central bank signaled that further interest rate hikes were to be expected, to return inflation to 2 percent over time.

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The decision to raise interest rates came after the most aggressive rate hikes since the 1980s to slow down four-decade-high inflation. The initial surge was short-lived, however, as policymakers signaled that rate hikes would continue, which dashed hopes that the central bank would stop raising.

However, the indexes later recovered as Fed Chairman Jerome Powell spoke to the press. According to Angelo Kourkafas, an investment strategist at Edward Jones told Reuters, Powell could have delivered a hawkish message but instead said that a lot of tightening has already happened.

All three major indexes finished the day with gains, with the S&P 500 up nearly 1 percent and the Nasdaq gaining 2 percent. The decision by the Fed to raise interest rates, while expected, still caused some market volatility, but in the end, the markets rebounded following Powell’s comments. The central bank’s commitment to returning inflation to 2 percent over time, along with the improving economic outlook, will likely continue to impact the markets in the coming days and weeks.

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