eli5 Where does all the extra money from fed interest rate hikes go?

Question

Especially regarding mortgage rates- folks are paying huge increases in monthly payments.
I’m assuming “to the government” but does it just get held somewhere?

In: 67

Answer 1

So the term “extra money” is a little loaded here. In simple terms, Interest goes up because of inflation. That means that everything in the economy is becoming more expensive, or to look at it another way, the dollar is worth less or buys less. Because Inflation affects everything (though not alway evenly), it means that interest rates aren’t “extra money” as such.