The Federal Reserve is charged with promoting maximum employment and price stability. To achieve those goals, it uses certain monetary policy tools to push the federal funds rate higher or lower. For context, the federal funds rate is a benchmark interest rate that influences other rates across the economy, including credit cards, personal loans, and mortgages.

Ultimately, raising interest rates reduces spending and employment, which slows economic growth and brings inflation down. Conversely, lowering interest rates promotes spending and hiring, which accelerates economic growth and allows inflation to drift upward. The Federal Reserve, therefore, adjusts the federal funds target rate based on its monetary policy goals at any given time.

In March 2022, officials began raising the benchmark rate to cool fierce inflation brought on by stimulus payments and supply chain disruptions during the pandemic. The benchmark rate has since increased at its fastest pace in four decades, meaning credit conditions have tightened incredibly quickly. That dynamic is shown in the chart below.

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Source Fool.com