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By Phyllis MUCHOKI
The Federal Reserve Wednesday again used its most potent weapon in trying to douse the hottest inflation in 40 years: interest rate hikes.
But the central bank’s move Wednesday to further raise borrowing costs means consumers and businesses are grappling with back-to-back increases of three-quarters of percentage point — a double-barrel monetary blast that could make a big impact on your finances.
To be sure, the Fed has raised rates in consecutive months before, but two 0.75 percentage-point hikes in a row “is pretty extraordinary,” noted Matt Schulz, chief credit analyst at Lending Tree.
The Fed hasn’t hiked rates by a combined 1.5% percentage points in consecutive meetings since as far back as the 1980s.
Today’s hike marks the fourth rate increase this year, though inflation still hit a fresh record in June, with prices jumping 9.1%. Yet there are signs the Fed’s actions are impacting demand, with home sales dropping amid a spike in mortgage rates and some consumers holding off on major purchases.
While the fed funds rate most directly impacts what banks charge each other for short-term loans, it feeds into a multitude of consumer products such as adjustable mortgages, auto loans and credit cards.
The increase takes the funds rate to its highest level since December 2018.
Markets largely expected the move after Fed officials telegraphed the increase in a series of statements since the June meeting.
Stocks hit their highs after Fed Chair Jerome Powell left the door open about its next move at the September meeting, saying it would depend on the data. Central bankers have emphasized the importance of bringing down inflation even if it means slowing the economy.
Financial Fortune is a digital financial news website and print business magazine published in Nairobi by Fortune & Transit Publishers Ltd and covers the financial services sector through news, views and extensive people coverage since 2018.