How Interest Rates Can Cool Inflation

After maintaining rates at a relatively low level for more than two years, the Federal Reserve boosted interest rates in 2022.

To slow the economy and contain inflation, the Fed raised interest rates by 0.5% in March 2022 and by another 0.5% in May 2022.

This prompts the query: How does raising interest rates contribute to controlling inflation? We examine the relationship between interest rates and inflation and what you should know.

The pace at which the cost of goods and services increases over time is known as inflation.

In other words, rather than focusing on a particular commodity or even a group of items, inflation is more about pricing trends seen across the economy as a whole.

 The Consumer Price Index (CPI) is the most often used gauge of inflation (CPI). It includes 80,000 products in a predetermined basket of goods and services and represents the monthly spending of Americans. 


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