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

The central bank interest rate sets the amount of interest that people who owe the central bank money pay the central bank. So this money goes from central bank borrowers (usually commercial banks) to the central bank. In some countries the central bank is part of the government but in most countries it is an independent entity.

Commercial banks however will mostly then copy the central bank interest rate. So that means money will go from their borrowers (mostly people with mortgages) to those private commercial banks.