Certified Financial Planner (CFP) Exam 2025 – 400 Free Practice Questions to Pass the Exam

Raising the Federal Reserve rate is a common action taken by the Federal Reserve in response to anticipated inflation. When inflation is projected to rise, the Federal Reserve may increase interest rates to help control price increases. By raising the interest rate, borrowing costs for consumers and businesses also increase. This typically leads to a reduction in spending and investment, which can help cool down an overheated economy and bring inflation under control.

In this context, higher interest rates can strengthen the currency, reduce demand for goods and services, and ultimately help stabilize prices in the economy. This proactive measure aims to prevent inflation from spiraling out of control, thereby maintaining the purchasing power of the currency.

The other options do not align with the typical responses to anticipated inflation. Lowering the Federal Reserve rate would generally stimulate borrowing and spending, which is contrary to the objective of controlling inflation. Increasing government spending is more likely to spur economic activity, potentially worsening inflation. Decreasing reserve requirements could encourage banks to lend more money, which could further increase the money supply and potentially exacerbate inflation pressures.