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Why Does the Fed Raise or Lower Interest Rates?

Alex Michalka, Ph.D

September 4, 2025

When the Federal Open Market Committee (FOMC, or the “Fed”) meets to weigh changing the federal funds rate, as it does eight times each year, the resulting decision invariably makes headlines. That’s because the federal funds rate (or the rate at which banks loan money to one another) can have big implications for financial markets and individual consumers. Whether the federal funds rate goes up, down, or stays the same, these choices can impact the cost of borrowing money and the amount you earn on your savings. But why does the Fed decide to raise or lower interest rates?

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