Interest rates are the cost of borrowing money or the return on savings, set by central banks like the Federal Reserve. Higher rates make borrowing more expensive and saving more attractive.
Interest rates are the central bank's main lever for managing inflation and employment. Small changes in the federal funds rate ripple through the economy—affecting mortgages, car loans, credit card rates, and business investment. Getting rates right shapes whether people can afford homes, businesses can expand, and inflation stays under control.
People often think higher interest rates always hurt the economy. They do raise borrowing costs, but they also fight inflation by making saving more attractive and borrowing less appealing. The Fed raises rates precisely when inflation is high; the short-term pain aims at long-term stability.
Interest rates are the central bank's main lever for managing inflation and employment. Small changes in the federal funds rate ripple through the economy—affecting mortgages, car loans, credit card rates, and business investment. Getting rates right shapes whether people can afford homes, businesses can expand, and inflation stays under control.
People often think higher interest rates always hurt the economy. They do raise borrowing costs, but they also fight inflation by making saving more attractive and borrowing less appealing. The Fed raises rates precisely when inflation is high; the short-term pain aims at long-term stability.