The U.S. Federal Reserve is expected to raise interest rates today, which hasn’t happened since the Phillies were World Series champs (talk about ancient history)!
Seven years ago — to the day — the Fed lowered rates to nearly zilch in a desperate move to increase borrowing and spending, and rejuvenate a tanking economy. The year was 2008. The housing bubble had just burst and major financial institutions were collapsing — or being bailed out, marking the start of a nationwide financial crisis that came to be known as the Great Recession.
Although today’s economy ain’t exactly glistening, things are definitely looking up. Unemployment is about half its 2009 peak of 10 percent. And the once anemic financial markets are have slowly rebounded.
All of which is why the Fed just announced its decision to marginally increase short-term interest rates by .25%, to a range of to a range of 0.25% to 0.5% (up from the longstanding range of 0% to .25%). The move is, in part, an effort to control inflation by increasing — or “normalizing” — the costs of borrowing money. Simply put, it’s still going to be pretty cheap to borrow money, but not quite as cheap.
The New York Times explained it well:
“The announcement will be akin to a doctor’s decision that a patient is well enough to be gradually taken off medication. The thinking inside the Fed is that the economy is finally healthy enough that borrowing costs should return to more ‘normal’ levels to help keep future inflation from accelerating too much.”
So what the heck does all of this mean? And why in the world should you care about stuff like interest rates and inflation? Stop motion guru Josh Kurz explains the process.