The Federal Reserve is stepping up its war on inflation. That means borrowing costs are going sharply higher for families and businesses.

The US central bank increased its benchmark interest rate by three-quarters of a percentage point on Wednesday, which is the biggest single hike since 1994.

This follows the Fed's decision to raise its rate by half a percentage point in May, the biggest increase in 22 years.

The fact that the Fed is moving decisively shows confidence in the health of the job market. But the speed with which interest rates are expected to go up underscores its growing concern about the soaring cost of living.

High inflation -- consumer prices rose in May at the fastest pace in 40 years -- will likely force the Fed to raise interest rates several more times in the coming months. Fed officials may even resort to additional large rate increases in a bid to cool off inflation.

Americans will initially experience this policy shift through higher borrowing costs: It is no longer insanely cheap to take out mortgages or car loans. And cash sitting in bank accounts will finally earn something, albeit not much.

The Fed speeds up or slows down the economy by moving interest rates higher or lower. When the pandemic erupted, the Fed made it almost free to borrow in a bid to encourage spending by households and businesses. To further boost the Covid-ravaged economy, the US central bank also printed trillions of dollars through a program known as quantitative easing. And when credit markets froze in March 2020, the Fed rolled out emergency credit facilities to avoid a financial meltdown.

The Fed's rescue worked. There was no Covid financial crisis. Vaccines and massive spending from Congress paved the way for a rapid recovery. However, its emergency actions -- and their delayed removal -- also contributed to today's overheated economy.

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