All eyes are on the Federal Reserve today as it is expected to announce the highest benchmark interest rate increase since 1994.
The announcement is set for 1 p.m. The benchmark rate is what banks charge each other for overnight loans of funds held at the Federal Reserve. Wall Street initially expected an increase of 50 basis points -- or 1/2 of 1%. Now most observers expect the Fed to raise it's benchmark by 75 basis points, or 3/4 of 1%.
The move is a way to combat inflation. The Fed has to be careful. Raise the rate too little and inflation keeps chugging. Raise it too much and there is danger of a recession and job losses.
What does an increase in the benchmark rate mean to you and your family? Well, on the plus side it means bank savings accounts and bonds will pay slightly more, though not enough to notice. But it also means lenders won't be able to borrow as cheaply as before, so they'll pass those cost on to the public. Mortgages, car loans, credit card rates, etc., will all cost more.
Raising the benchmark rate is not an instant cure for inflation. And there will likely be even more rate increases before the current inflation gets under control. But it's something that's we're just going to have to deal with. It will pay off down the road with lower prices at the pump, grocery store and retail outlets.