Why is the Fed raising interest rates?

Short answer

The Fed raises rates mainly to slow down inflation. Higher rates make borrowing more expensive, which cools spending and investment.

What happened

The Federal Reserve either lifted its benchmark rate or signalled it will keep rates 'higher for longer'.

Why it happened

When inflation runs above the Fed's 2% target, the classic tool is to raise rates. That makes mortgages, car loans and business loans more expensive, which reduces demand and — eventually — prices.

Why investors care

Rates set the cost of money everywhere. Stocks, bonds, crypto and property all reprice around them.

How it affects ordinary people

Savings rates go up. Mortgages and loans get more expensive. Growth stocks tend to struggle. It usually takes 6–18 months for the full effect to hit the economy.

FAQ

How high can the Fed go?

There's no fixed ceiling. Historically the Fed rate has swung from near 0% to over 20%. Current cycles have peaked around 5–5.5%.