Here’s How the Fed Actually Raises Interest Rates

1 minute read

Federal Reserve officials on Wednesday ended a years-long policy of keeping interest rates at or near zero, voting for the first rate hike since 2006 and ending a hotly-debated monetary policy that was meant to keep the American economy afloat in the wake of the financial crisis.

But Fed Chair Janet Yellen and her fellow central bankers can’t simply throw a switch that automatically sets interest rates across the economy. Instead, the Fed will rely on two tools to help lift rates into a target range. Think of the Fed as pulling and pushing the elevator up and down, and the cost of money for everyone from consumers to corporations rises and falls as the elevator does.

See the animated GIF below for more on how this all works.

GIF animation by Lon Tweeten

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