I’ve heard that this happens through banks, but what financial mechanism is used to do this? It can’t simply be “Hey Chase Bank, here’s $100 million for free”.
In: 14
The Fed lends banks money, which the banks then lend to businesses and consumers. They control the interest rate at which they lend it.
When that interest rate goes up, the banks raise interest rates as well. Would-be borrowers are driven to either not borrow or borrow less.
This reduced borrowing restricts the amount of money moving through the country’s economy.
If the Fed lowers interest rates, the cash flow increases instead. More businesses and people can afford bigger loans. They spend this money and the cash flow increases.
Latest Answers