It means that the Federal Reserve is setting the target for how much interest they charge when they lend money to banks. In turn, this raises how much banks charge each other for overnight loans. By setting the rate higher, banks will be less likely to borrow money and more likely to hold what they have. Essentially, banks are less likely to borrow and lend money, which means there is less money to go around
It also increases the interest rates for consumer loans. This means that people will be less likely to make larger purchases that require financing, and will be more likely to save money to take advantage of the higher returns.
Since there is less spending going on and less money to go around, demand for products goes down, which should force retailers to reduce their prices (or lessen the amount they increase them by)
furriosity t1_ja8pon1 wrote
Reply to Eli5: What does it mean when Fed "raises interest rates"? by [deleted]
It means that the Federal Reserve is setting the target for how much interest they charge when they lend money to banks. In turn, this raises how much banks charge each other for overnight loans. By setting the rate higher, banks will be less likely to borrow money and more likely to hold what they have. Essentially, banks are less likely to borrow and lend money, which means there is less money to go around
It also increases the interest rates for consumer loans. This means that people will be less likely to make larger purchases that require financing, and will be more likely to save money to take advantage of the higher returns.
Since there is less spending going on and less money to go around, demand for products goes down, which should force retailers to reduce their prices (or lessen the amount they increase them by)