Why does it matter when the federal funds rate goes up or down?
As a general rule of thumb, a lower federal funds rate means that it’s much easier for banks to carry on their normal business. They can lend with more confidence, knowing that if the depositors come around wanting withdrawals, they can borrow the money back pretty cheap. A higher rate means that banks are more cautious about lending money. As a result, the Federal Reserve usually cuts their rates when the economy is starting to look weak (encouraging more loans) and usually raises the rates when the economy is starting to look strong (encouraging more conservative loans). 4. Why would the Fed ever want to raise rates if it makes the economy worse? Think about your own life – one year, you might buy a car and a new living room set, but then you won’t buy anything over the next few years. This is probably affected by a lot of things – your feelings about how secure you are in your job, how the economy is doing in general, and so on. If you lose your job, for instance, you’re not going t
