How raising interest rates slows inflation


Federal Reserve Chairman Jerome Powell speaks at a news conference following a Federal Open Market Committee meeting on May 4, 2022 in Washington, DC.

Win McNamee | Getty Images

The Fed’s main tool to battle inflation is interest rates

The Federal Reserve has a few main goals with respect to the economy: to promote maximum employment, keep prices stable and ensure moderate long-term interest rates.

Generally, the central bank aims to keep inflation around 2% annually, a number that lagged before the pandemic.

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…


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