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?
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The way banks make money is they borrow money at one rate and then lend it out at some higher rate. The rate at which banks borrow money is called the bank’s “cost of funds”. If the cost of funds goes up and the bank doesn’t adjust the rate at which they lend money, the bank’s revenue will go down. This is why banks generally increase interest rates in step with the Fed’s moves.
The Fed does not directly set the rate at which banks borrow money, but they do influence rates through several mechanisms which I won’t explain here. The rate is a “target” rate, but in general the rate is influential enough to raise or lower banks’ cost of funds. The Fed does this to roughly influence the amount of lending in the market. If there is “too much” lending then prices start to go up (aka inflation) as there’s more “cheap” money in the economy. The Fed is on general always trying to strike a balance between a growing economy and controlling inflation.
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