Federal Reserve officials said this week they are thinking about raising interest rates to fight inflation. Interest rates are the cost banks charge when companies borrow money. When rates go up, it becomes more expensive for businesses to borrow money for everyday operations and expansion.
The Fed is considering this move because prices for goods and services are still climbing too fast. Global events like the ongoing conflict in Iran have pushed oil prices higher, making energy and shipping more costly. When companies pay more for supplies and energy, those costs sometimes get passed on as higher prices to customers, which feeds inflation.
Small and medium-sized businesses that rely on borrowing to hire new workers and buy equipment will feel this squeeze the most. A company that planned to open a new location or hire 10 new workers might hold off if borrowing becomes too expensive. Workers seeking jobs could face tougher competition as some companies slow their hiring plans. Wage growth might also slow because employers will have less money available for salary increases.
The Fed's next decision will likely come at their June 2026 meeting, when officials will announce whether they are actually raising rates and by how much. If they do raise rates significantly, economists expect business investment to slow down over the summer and fall. This could mean fewer job openings in the second half of the year, though it may also help bring inflation back under control, which protects workers' paychecks from losing buying power.