Why do interest rates matter?

Interest rates matter in many different ways that affect the U.S. economy. One way that interest rates matter is they influence borrowing costs. Lower interest rates, for example, would encourage more people to obtain a mortgage for a new home or to borrow money for an automobile or for home improvement. Lower rates also would encourage businesses to borrow funds to invest in expansion such as purchasing new equipment, updating plants, or hiring more workers. Higher interest rates would restrain such borrowing by consumers and businesses.

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The Fed seeks to set interest rates to help set the backdrop for promoting the conditions that achieve the mandate set by the Congress--namely, maximum sustainable employment, low and stable inflation, and moderate long-term interest rates.

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Last Update: September 09, 2016