Why did the Federal Reserve raise interest rates in 1928 and 1929?

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A long line of unemployed men in coats and hats stands outside a soup kitchen in Chicago, with a storefront sign reading Free Soup, Coffee and Doughnuts for the Unemployed. — Great Depression Unemployed men standing in line outside a soup kitchen, Chicago.

The Federal Reserve raised interest rates in 1928 and 1929 primarily as a monetary policy measure intended to curb rampant stock market speculation.1

During the 1920s, stock prices had risen significantly, and the Federal Reserve sought to slow this rapid growth by making borrowing more expensive. While these actions were aimed at the financial markets, they had broader economic consequences: the higher interest rates disproportionately affected interest-sensitive sectors of the economy, such as construction and automobile manufacturing. This led to a slowdown in production and output across those industries, contributing to the initial decline in U.S. economic activity that preceded the Great Crash of 1929.12