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IPFS News Link • Inflation

Fed Announces the Biggest Rate Hike in 28 Years: What's Next for Inflation?

•, Marcos Cabello

The central bank ratcheted up interest rates by 0.75 percentage points, bringing the federal funds rate into a range of 1.5% to 1.75%. This increase is more aggressive than the Fed's 0.25 percentage point increase in April and 0.50 percentage point increase in May.

Though inflation showed signs of leveling off in April, the Consumer Price Index reading for May showed that inflation isn't slowing down. In May, inflation climbed by 1%, placing the rate at a 40-year high of 8.6% for the past 12 months. The CPI numbers came just days ahead of the Fed's June meeting, propelling the central bank to take swift and bold action to quell rising prices. 

"By this point, we had actually been expecting to see clear signs of inflation flattening out and ideally beginning to decline," Fed Chairman Jerome Powell said at Wednesday's press briefing. "Contrary to expectations, inflation surprised to the upside. We thought that strong action was warranted at this meeting in the form of a 75 basis point rate hike."

And this won't be the final rate hike. Powell said another 0.5 or 0.75 percentage point increase is likely at the Fed's next meeting in July. 

What does this mean for you? Historically, raising rates is a key step the Fed takes to combat rampant inflation, but it also means rate increases for credit cards, mortgages and other loans. In other words, the cost of borrowing goes up, making it more expensive to finance a home, car and other essential purchases.

What's causing this record-high inflation level? And what does the Fed plan to do next? Here's everything you need to know.

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