Let’s find out how inflation and interest rates affect each other 🤼

💡Inflation = the rate at which prices for goods and services are rising.

Inflation can lower the value of your money.

If inflation is 5% a year, a $1 candy bar will cost about $1.05 next year 🫢

Think of inflation as a balloon 🎈

If you keep filling it with air (rising prices), it will become bigger.

If it’s filled too much, the balloon might pop (cause the economy to crash).

Interest rates are a tool to control inflation.

When inflation is high, the Fed can raise interest rates to lower it. 🔧

In our balloon analogy, interest rates are like a very thin needle 📍

Poking it into the balloon will let some air out (slow down the economy) and keep it from popping!

For example, in early 2022 the Fed started raising interest rates to try and combat rising inflation, and only stopped doing so in late 2023!

Now that you understand how inflation & interest rates work together, try to remember this the next time you read a piece of news about this stuff! ☺️