ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A higher fed funds rate means more expensive borrowing costs, which can reduce demand among banks and other financial institutions to borrow money. The banks pass on higher borrowing costs by raising the rates they charge for consumer loans.

Detailed explanation-2: -When inflation is too high, the Federal Reserve typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Federal Reserve typically lowers interest rates to stimulate the economy and move inflation higher.

Detailed explanation-3: -Rates Affected by the Fed Funds Rate That’s the prevailing interest rate that banks charge their best customers. The prime rate affects many consumer interest rates, including deposits, bank loans, credit cards, and adjustable-rate mortgages. The FFR indirectly influences even longer-term interest rates.

Detailed explanation-4: -In other words, when the Fed increases interest rates, it reduces demand for goods and services, which could result in companies hiring less or laying off their workers and potentially lead to a much-feared recession.