Why interest rates reach beyond the headlines.
Follow the connection between the cost of borrowing and the decisions people and businesses make.
In this guide
Interest rates affect borrowing costs, which can influence spending and investment decisions.
Start with the cost of money.
Lower interest rates can encourage households to borrow for purchases and businesses to invest in expansion. Higher rates can restrain that activity by making borrowing more expensive. [1]
The goal is bigger than a single rate.
In the United States, Federal Reserve policymakers seek conditions consistent with maximum employment and stable prices. Their decisions are part of a wider economic picture, rather than instructions to buy or sell an asset.
Read the explanation, too.
When a rate decision appears in the news, look for the central bank’s accompanying explanation. Separate the decision itself from predictions about what might happen next. This guide explains the mechanism; it does not report today’s policy rate.