Rising Interest Rates Explained: You’ve Had it Too Good for Too Long

Twinsterphoto / shutterstock.com
Twinsterphoto / shutterstock.com

Federal interest rates are the interest rates that are set by the Federal Reserve, which is the central bank of the United States. The Federal Reserve sets the federal funds rate, which is the interest rate at which banks can borrow money from each other overnight to meet their reserve requirements.

Changes in federal interest rates can have a significant impact on the economy. For example, if the Federal Reserve raises interest rates, it can make borrowing more expensive and slow down economic growth. On the other hand, if the Federal Reserve lowers interest rates, it can stimulate borrowing and economic activity.

Raising interest rates slows inflation by discouraging people and businesses from borrowing and spending money. This theoretically reduces demand for goods and services, which in turn reduces the prices paid for them. When not purchasing goods and services, the story goes, Americans will put their money into savings vehicles that yield higher returns on the funds.

Low interest rates encourage excessive borrowing and speculation, leading to asset bubbles in stocks, housing, or other asset classes. Raising interest rates can help to prevent such bubbles from forming. These higher rates also “slow” and “cool” a robust economy to avoid recession.

Higher interest rates lead to higher investments from foreign investors, leading to an increase in demand for the currency which increases its value.

Overall, the decision to raise interest rates is made by the Federal Reserve based on a variety of economic factors and is intended to achieve its mandate of promoting price stability, maximum employment, and moderate long-term interest rates.

Which leads the United States away from a recession, right?

A recession is a decline in economic activity that lasts two or more consecutive quarters of negative gross domestic product (GDP) growth. In a recession, the economy suffers slowdowns in areas like investments, employment, consumer spending, and corporate production.

Contributing factors for a recession include prices paid for energy or production materials, a drop in asset valuation, increased unemployment, or a financial crisis. A recession is devastating for average Americans, leading to business failures, unemployment, rising costs of necessities, and an overall decline in the quality of life.

Remember, one way that raising interest rates can allegedly help prevent a recession is by reducing the amount of money that people and businesses are willing to borrow. In short, this strategy intentionally cripples Americans financially.

As if Biden’s avoidable inflation wasn’t bad enough, Americans are now watching their dream of home ownership pass them by, or, ironically, must keep driving old, inefficient cars that “are destroying the planet.” If you have debt, getting a loan is now out of reach and extending your credit card’s borrowing power is unsustainable.

Despite the rose-colored glasses worn by those on the left, raising interest rates inflicts even more suffering on an already economically traumatized America. The strategy of saving money, if that’s even possible in a nation currently living paycheck to paycheck, reduces consumer spending which, in turn, slows economic growth and leads to unemployment. Meanwhile, raising interest rates cause businesses to pay more for borrowing money, a loss that corporations happily pass on to the consumer. And this is all before the decreasing value of existing bonds and other fixed-income investments, making it even harder for those who rely on these investments for income or retirement savings.

Somehow, the government claims we’ve dodged a recession. The only thing keeping us away from recession, though, is that the job market remains stable. Thanks to rising interest rates making businesses slow the borrowing that fuels production, it’s unlikely that corporations will continue hiring or, for that matter, paying current employees.

Recession, anyone?

Obviously, none of this matters to the elite in D.C. If it doesn’t affect them, it doesn’t exist. As always, the middle-class and the poor shoulder the burden of failed economic policies.

In short, Americans have had it too good for too long.

But don’t worry. The government is here to help.