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The Federal Reserve has approved the largest interest rate hike since 1994 in an effort to continue to slow down the economy and curb high inflation. The central bank increased rates by 0.75 percentage points yesterday, raising the range for its benchmark federal-funds rate from 0.75%-1% to 1.5%-1.75%. The increase means higher borrowing costs for consumers and businesses, including for credit cards, mortgages, and auto loans (see 101). 

The hike exceeds previous 0.5 percentage-point increases in March and May, as annual inflation reached a four-decade high of 8.6% last month, fueled by high prices for food, shelter, and energy. In contrast, the Fed typically targets year-over-year inflation near 2% (see why).

The central bank plans to raise rates four more times this year. Officials forecast the benchmark rate to reach a range of 3.25% to 3.5% by year’s end, which would be the highest since 2008 (see history).