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

To lenders.

Banks borrow money from each other and from the Federal Reserve all the time. If the Federal Reserve makes it more expensive to borrow from them, then that’s extra demand that goes onto the rest of the lending market, which raises interest rates everywhere.

Now specifically regarding mortgage rates, how those work are that investors will be willing to lend at a certain rate depending on alternative investments. Since these investors now have the option to lend directly to banks at a higher rate, they need an even higher interest rate from homebuyers to consider investing in a mortgage instead.