Okay let’s get some groundwork down first.
So the Federal Reserve is not part of the Government. It’s more like a company that has been given an exclusive contract by the Government and is owned by the banks and the Government together. Part of that contract is that the Fed is led by Presidental Appointees, and they report to Congress every so often. But they are their own organization.
One of the powers they have is the ability to set rates that banks can loan money to one another. Banks have to do this every day due to legal requirements to have their books balanced, so they offer and seek overnight loans to one another.
So how does controlling interest rates between banks giving loans overnight result in more expensive mortgages? Well no loan is in a vacuum because money loaned out in one place is money that can’t be loaned out somewhere else. So as one interest rate increases, all interest rates increase in response.
So no money directly goes to the Government or the Fed when rates go up. The rates do result in assets the Fed holds making more money though, but that is not on the same scale as what the general population pays in interest increases.
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