There’s this institution called the Federal Reserve, and it is very important.
The Fed is the nation’s central bank and has two objectives: to keep long-term inflation stable and maximize employment. That means its job is to ensure that as many people as possible who want a job, are able to get one. And that prices overall don’t go up, or down, too dramatically for too long.
The main way the Fed gets its job done is by controlling short-term interest rates. These rates can affect how much it costs you to borrow money for your mortgage, car, or credit card.
When interest rates are higher, people tend to borrow less money and the economy slows down. Lower interest rates are supposed to encourage borrowing to give the economy a boost. That’s the theory anyway.