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Fed Increases Rates For First Time In Five Years

Why is the Fed raising rates? The short answer: inflation. Inflation has remained above the Fed’s 2% target for more than five years. The Labor Department reported Friday that consumer prices rose 3.4% in August compared to a year earlier, while the monthly increase quadrupled from July to hit 0.4%. The Fed’s goal is to slow consumer and business spending by raising the cost of borrowing, thereby reducing demand for homes, cars and other goods and services, eventually cooling the economy and reducing upward pressure on prices. Kevin Warsh, Fed chair since May, has assured Congress that central bank policymakers “have no tolerance for persistently elevated inflation.” Speaking to reporters Wednesday after the Fed’s meeting, Warsh argued that the rate hike will benefit lower-income Americans because they are hurt most by higher prices. “The least well off are the ones that have the most to gain from stable prices,’' he said. “The decision we made today was the right decision to deliver on the remit that Congress gave us to ensure stable prices.”

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