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The pandemic triggered the worst bout of inflation in 40 years, and the Federal Reserve reacted with its most aggressive rate-hiking cycle in decades. Between March 2022 and July 2023, policymakers raised the federal funds rate to its highest level since 2001.
The federal funds rate is a benchmark that impacts other interest rates across the economy, like credit card and loan rates. Higher interest rates discourage consumer spending and business investments, which curbs pricing pressure. For instance, the Fed's rate-hiking campaign has caused inflation to fall more than 6 percentage points since peaking two years ago.
However, higher interest rates also suppress economic growth. Recent reports indicate the labor market is weakening and manufacturing activity is contracting. Based on those signals, investors expect the Federal Reserve to lower interest rates at its September meeting, something policymakers haven't done since 2020.
Source Fool.com
