Nicole Lapin

This is what's called their dual mandate, and it's literally written into the law.

The Fed wants to keep inflation under control and keep unemployment low.

And those two goals are constantly in tension.

When the economy is overheating, prices are rising too fast.

Inflation is running too hot.

The Fed tends to raise rates.

This makes borrowing more expensive.

As a result, consumers pull back, demand cools, and inflation ideally follows.

When the opposite is true, the economy is sluggish and unemployment is climbing and growth is stalling.

The Fed usually cuts rates.

Borrowing gets cheaper, companies invest, consumers start spending, growth returns.

Hooray!

That is the theory anyway.

The Fed's target for inflation is 2%.

As of the latest numbers, inflation, though, is running at 3.8% year over year.

That is nearly double the Fed's target.

So based on what I just said, the Fed might want to raise Fed funds rate to cool inflation.

But it's not so simple.

It never is.

Eight times a year, the FOMC, that's the Federal Open Market Committee, the 12 member body that actually votes on these rates, meets for two days and releases a decision on interest rates.