Why do interest rates matter?

Interest rates influence borrowing costs and spending decisions of households and businesses.

Lower interest rates, for example, often encourage more people to obtain a mortgage for a home or to borrow money for an automobile or home improvements. Lower rates also can encourage businesses to borrow funds to invest in expansion, such as purchasing new equipment, updating plants, or hiring more workers. Conversely, higher interest rates can restrain such borrowing by consumers and businesses, which can prevent excesses from building in the economy.

The Federal Reserve policymakers on the Federal Open Markets Committee seek to set interest rates that create the conditions needed to achieve the mandate given by Congress—to promote maximum employment and stable prices.

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Last Update: July 19, 2024