Central Bank & Interest Rate Topics

Central banks, like the Federal Reserve in the U.S., act as the economy's primary regulator. Their main tool is the 'policy interest rate,' which dictates the cost of borrowing for commercial banks. When they 'hike' rates, borrowing becomes more expensive, slowing down spending and investment to cool off an overheating economy and fight inflation. Conversely, 'cutting' rates makes borrowing cheaper, encouraging economic activity during a slowdown.