Inflation, dollar hyperinflation with black background. One dollar bill is sprayed in the hand of a man on a black background. The concept of decreasing purchasing power, inflationWe have all felt the profound effects of inflation in our daily lives. From higher prices at the pump to the cost of milk, everything is more expensive. What we are seeing in the supermarket is borne out statistically as well. As of Dec. 14, 2022, the United States' annual inflation rate is 7.1% after having reached a high of 9.1% in June 2022. These are the highest rates since the late 1970s.

To fight inflation, the Federal Reserve (Fed) used the main quiver in its arsenal by raising interest rates. On Dec. 14, 2022, the Fed raised its interest rate from 4.25% to 4.5%, its highest level in 15 years. The Fed has signaled that there could be more rate increases to come.

The result of the Fed's rise in interest rates is a corresponding rise in the IRS's Applicable Federal Rate (AFR), which generates a rise in §7520 rates. In December 2022, the long-term, annual AFR was 4.34% while the 7520 rate was 5.2%. By way of comparison, the long-term, annual AFR in December 2021 was 1.9% and the 7520 rate was 1.6%.