Fed just raised its benchmark interest rate. This is actually a big deal because it is the first time they have raised rates since 2023. I figured we could just talk through exactly what happened and why.

Why Raise Rates Now?

Right now, the economy is being heavily shaped by the ongoing war in the Middle East. Because of the current economic environment, the Fed felt it had to make a move. Their main goal with this rate hike is to reduce the amount of money people are spending and stop inflation from becoming a permanent fixture in our daily lives.

Here is what went down behind closed doors:

• A Unanimous Decision: The Fed’s rate-setting committee was completely united on this choice.

• The Chairman's Vote: Interestingly, Chairman Kevin Warsh voted for the increase. I do feel this came as a shock to all as Warsh is Trump’s pick for Fed Chair, making a sharp turnaround from the pressure faced by the Trump administration to lower rates.

The Real-World Impact

When the Fed raises its rate, borrowing money instantly becomes more expensive for regular people.

Here is what you will likely see:

• Higher interest rates on mortgages. Will this finally be the nail in the coffin of inflated housing prices? There has already been an overwhelming supply all over the country.

• More expensive auto loans.

• Increased borrowing costs for other big-ticket items.

It basically means things get pricier for Americans who are already struggling to afford homes and cars.

The Big Risk

There is a very real trade-off happening here. The economy is already showing signs of financial strain. By making it more expensive to borrow and spend money, there is a high risk that the Fed’s fight against inflation could come at the direct expense of overall economic growth. They are trying to lower prices, and although they risk weakening the economy in the short term, the risk posed by runaway inflation is greater in my opinion.