Federal Reserve to raise interest rates

Chairman Jerome Powell announced Wednesday that the central bank will start raising benchmark interest rates to help fight rising inflation. While the statement did not lay out a timeline, policymakers indicated the interest rates could go up as soon as March. The Fed also plans to reduce its nearly $9 trillion in bond holdings. Some analysts expect that to happen as soon as July.

Why now? Supply shortages and growing demand for goods like semiconductors have pushed inflation to a 40-year high. Consumer prices have risen by 7 percent in the last year. Powell said by phasing out pandemic policies, the central bank can manage economic growth while keeping the unemployment rate low. Over time, the changes will raise the cost of borrowing money on everything from mortgages to credit cards to auto loans. Some worry that higher borrowing costs could, in turn, slow consumer spending and hiring. 

Dig deeper: Listen to financial analyst David Bahnsen discuss the central bank’s latest moves on The World and Everything in It podcast.

Editor's note: The headline of this story has been corrected to reflect the Federal Reserve's intention to raise interest rates.