So how are interest rates actually determined? Who sets the rate?

Interest rates are set by lenders, the people offering loans, and the biggest lender in the US is the Federal Reserve (or Fed) 🏦

💡 The Fed sets the Federal Funds Rate (FFR), which is like a target rate that everyone else, from banks to businesses, models their interest rates off of.

Lenders like banks and businesses follow the Federal Funds Rate closely: when the FFR goes up, so do their interest rates 🚀

The Federal Reserve meets 8 times a year to decide what to set the Federal Funds Rate to.

Each time, they can decide to either raise it, lower it or keep it the same.

Economic growth, unemployment, inflation and more affect the Fed's decision on what to set the FFR to 🤔

For example, when the economy was crashing in 2020 due to COVID-19, the Fed cut the FFR to almost 0%

And as the economy started to recover in 2021-2023, they raised it back up to over 5%!

The Federal Funds Rate impacts everybody in the economy, including businesses, banks and even you!

Next, let's learn more about how interest rates affect the economy and how you can apply this knowledge to your investing 🌌