How Does the Fed Raise Interest Rates?
The mechanics are different post-financial crisis.
Question: How does the Fed actually "raise" rates? What goes on behind the scenes?
Answer: Many investors understand some of the basic effects that rising interest rates have. Higher rates ultimately benefit savers, because rates on savings accounts, money markets, and CDs trend higher. But the prices of longer-dated bonds, which have an inverse relationship with rates, fall. Borrowing costs will rise when interest rates go up, too. That has an impact on businesses that borrow money to fund their operations and grow, and it also affects consumers as the rates on many consumer loans--such as home-equity loans, credit cards, and auto loans--tend to rise.