An interest rate best represents a cost to borrowers and a reward to savers.
The prime rate, the benchmark from which other interest rate, including those for mortgages and personal loans, are derived, is influenced by the federal funds rate. People will eventually start cutting back on their spending since increased interest rates result in greater borrowing costs.
Reduced interest rates make borrowing less expensive, enabling people to spend and invest more freely. Interest rates have a long-term impact on the cost of borrowing money. On the other hand, raising rates makes borrowing more expensive and may restrain expenditure in favor of saving.
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