Why is raising interest rates a good idea for the Fed Reserve?

Question

I learned that low fed interest rates makes ppl borrow more, stimulating economy as money circulation is higher. why ever increase it then, if increasing it worsens the econ?

Also ,is the fed reserve actually the goveernment bank? heard it was still a giant private bank and the goverment has nothing to do with it

In: Economics

Answer 1

Interest encourages people to use money rather than sit on it. If I have 100 I can buy 100 of goods or services. When interest rates rise, what used to cost 100 might now cost 105. I still have only 100, so my purchasing power has reduced. My money is worth less.

This encourages people to keep money in circulation rather than hoarding it, by investing it or spending it.