The Federal Reserve is poised to announce its first interest rate hike since 2018 on Wednesday. The central bank is likely to raise its target federal funds rate by 25 basis points to address the worst inflation in more than 40 years, partially brought on by the coronavirus pandemic. A basis point is equal to 0.01%. Yet consumers who are already grappling with higher prices putting a strain on their wallets may be wondering how increasing borrowing costs will help tamp down inflation. Its main tool to battle inflation is interest rates. It does that by setting the short-term borrowing rate for commercial banks, and then those banks pass rates along to consumers and businesses, said Yiming Ma, an assistant finance professor at Columbia University Business School.
Source: Economy
