Monthly inflation rate and Federal Reserve interest rate in the U.S. 2018-2023
In August 2023, the Federal Reserve interest rate reached its highest value in the observed period, standing at 5.33 percent. The Federal Reserve had commenced a series of frequent rate increases at the beginning of 2022, with the increase in August marking the 18th consecutive rise.
What is the Federal Reserve interest rate?
The Federal Reserve interest rate is the interest rate at which banks and credit unions borrow from and lend to each other. It is one of the primary tools to maintain strong employment rates, stable prices, and reasonable interest rates. It's determined by the Federal Reserve and set eight times a year, although it can be set through immediate emergency meetings during times of crisis. As the Federal Reserve does not have direct control over interest rates, it sets a target rate rather than the actual interest rate. Once the target rate is set, the Federal Reserve engages in open market operations to hit that target.
Ways of measuring inflation
Inflation can be measured in several ways; however, it is most often measured by the consumer price index (CPI), which measures the total price of a fixed basket of goods and services over time. This represents a measure of costs that consumers face, calculated to represent how much changing prices affect consumers. At the end of 2022, the CPI was 152.67 in the United States, up from 143.49 a year earlier. A more business-focused way of looking at inflation is the producer price index (PPI), which represents the costs of firms.