The Federal Reserve is accelerating the hike in key rates in the face of record inflation.

On Wednesday, the central bank announced a 0.75% rate hike, a sign that it is acting more aggressively to fight rising consumer prices. This is the first time since 1994 that the Fed has raised its rate so much. The three-quarter point hike takes the federal funds rate between 1.5% and 1.75%.

The consumer price index, a key gauge of inflation, came in at 8.6% last week on an annual basis – warmer than expected. This sparked stock market volatility at the start of the week. Notably, food price increases are at 40-year highs, while gasoline prices are also at an all-time high. The higher-than-expected inflation reading jolted markets early in the week. On Monday, the S&P 500 officially entered bearish territory.

Market watchers say the Federal Reserve is trying to thread the needle of cooling inflation while not dragging down the economy as a whole.

“Chairman Jerome Powell and his colleagues are walking a monetary policy tightrope in the hope of averting a recession while dampening demand,” Mark Hamrick, senior economic analyst at Bankrate, said in a note.

Federal Reserve Chairman Jerome Powell, President Joe Biden and Treasury Secretary Janet Yellen in the Oval Office on May 31.Saul Loeb/AFP via Getty Images File

So far, he said, the Fed’s actions have dragged stocks down and made borrowing much more expensive, especially in the housing market, where mortgage rates are now the highest in more than a decade. ‘a decade.

Hamrick has some advice on how to manage the current monetary environment: paying down debt and turning to higher-yielding savings accounts.

“In this rising interest rate environment, borrowers are advised to focus on paying down debt, prioritizing variable rate interest as with credit cards,” he said. . “A more buoyant environment is developing in terms of savings, in particular with more profitable online accounts.”

As for equity investors, Hamrick says to stay the course.

“Those with long-term investment horizons, like retirement accounts, should be rewarded when the stock market inevitably enters a more constructive environment,” he said.