The Fed raises rates by 0.5%

The Federal Reserve’s policy-making committee unanimously voted to raise interest rates by 0.5% yesterday in an effort to tame inflation, which increased 7.2% year-over-year in November.

🏦 More details… The Fed’s decision breaks a string of four consecutive 0.75% rate hikes, which marked the central bank’s most aggressive pace of monetary policy tightening since the early 1980s (the last time inflation was this high).

Benchmark interest rates are now set at a range between 4.25% and 4.5%. That’s their highest level since 2007, and up from near-zero as recently as March.

• In the Fed’s official statement, published yesterday, a majority of officials said they support further raising interest rates to between 5% and 5.5% by early next year.

📈 Big picture: Like securing a first date with your forever crush, interest rate hikes are a big deal, affecting borrowing costs across the entire US economy. Some notable examples:

• The average 30-year fixed mortgage rate has nearly doubled since January (3.29% → 6.49%).
• The yield on a two-year US Treasury bond has increased from 0.73% at the start of the year to 4.41% in December.
• Average credit card interest rates are sitting at 19.6%, up from 16.3% in February.

📊 The market reacts: Stocks rose early in the day, but fell in choppy trading after the Fed’s decision was released. They ultimately closed down across the board. (Dow: -0.4% | S&P: -0.6% | Nasdaq: -0.8%)