What are the economic impacts of rising interest rates?

Rising interest rates can make borrowing money more expensive for people and businesses.

Imagine you're saving up to buy a new toy, but instead of putting your coins in a piggy bank, you lend them to a friend who promises to pay you back later. If the friend says, "I'll give you extra candy next week!" that's like getting a lower interest rate, it’s better for you. But if they say, "I’ll only give you a little more candy," that's like a higher interest rate, it costs you more.

When interest rates go up, loans, like the ones banks give to people buying houses or cars, get more expensive. It’s like your friend now has to pay you extra candy every week instead of just once, they might not want to borrow as much anymore. This can slow down things like buying a house or starting a lemonade stand.

Businesses also borrow money. If borrowing becomes more expensive, they might have to spend more on things like rent or supplies. That could mean fewer new toys in the store or less candy for everyone, which means less money moving around in the economy.

So, when interest rates rise, it can feel a bit like everyone is paying more for everything, and that slows down how much people and businesses spend and grow.