Interest rates affect everyone from big companies looking to expand to regular people taking out a mortgage or using a credit card. The Fed is responsible for setting interest rates – the cost of borrowing money between banks – and those rates ripple throughout our economy, impacting everything from mortgage rates to stock prices and even some life insurance policies.
A nation’s central bank sets its interest rates to spur or slow down the economy. By adjusting interest rates, a government can help control inflation and growth while keeping unemployment low and the value of its currency high.
When a nation’s economy is growing too fast, inflation could quickly rise to dangerous levels. The Federal Reserve (Fed) can control inflation by increasing interest rates, which makes it more expensive to borrow money. This will cause businesses and consumers to delay plans to spend or invest, causing inflation to decrease.
The Fed also may lower interest rates in order to stimulate the economy and encourage spending and investing. Lowering interest rates means the cost of borrowing is cheaper, so businesses and consumers are more likely to spend and grow the economy.
A rate hike directly impacts how much it costs to borrow, which is why anyone thinking of applying for a loan will want to compare rates now to see what the best options are and make sure they can qualify for the highest possible rate. It’s also a good time to look into higher-yield savings accounts like CDs and money market accounts.
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