It was the year 2022 and the economy had been soaring for the past five years. In response to the rising prices, the Federal Open Market Committee (FOMC) took swift action. They decided to raise the Federal Funds Rate (FFR), the interest rate that banks charge each other for overnight loans of funds maintained at the Federal Reserve. The FFR was raised from 2.25 percent to 4.5 percent, a significant hike that caused shockwaves throughout the markets.
The hope was that raising the FFR, while not completely eliminating inflation, would provide some relief to consumers by slowing the pace at which prices increased.
And it seemed that the FOMC's strategy was successful. By 2023, the FFR had settled to a relatively steady 3.7 percent and inflation levels had returned to a more acceptable level. Although prices still increased, the rise was much slower and, when matched with the rest of the nation's economic indicators, seemed to have had a positive effect on the nation's prosperity.
The FOMC's quick and decisive action in raising the FFR in 2022 had paid off and had prevented the economy from slipping back into the dreaded recessionary cycle once more.