Fun Fact: When we talk about the U.S. Federal Reserve (FED), complex terms and graphics that seem straight out of a science fiction movie often come to mind. But here's a fun fact that might surprise you: the FED's interest rate decisions don't just affect big banks and corporations, they have a direct impact on our everyday lives, sometimes in unexpected ways.
THE "COFFEE" RULE
One day you decide to buy a coffee and the FED decides to "cut interest rates," this everyday act becomes a symbol of economic optimism. With lower rates, taking out a loan to buy a house or a car becomes more affordable, which in turn can increase consumption. More people go out to spend, and that means more customers at the local coffee shop.
The coffee that normally cost $3 could even go up to $3.50 due to high demand.
Now, if the FED "raises interest rates," the story changes dramatically. Borrowing becomes more expensive, and people start tightening their belts. The coffee shop that was once packed with customers may notice that foot traffic is dwindling. The coffee that once cost $3 might stay the same, or even go down, as landlords want to attract the few customers left.
This phenomenon is not limited to just one coffee shop. From apartment rent to streaming service subscription fees, the Fed's interest rate policy has a domino effect on the economy. When rates are low, people are more likely to spend and borrow (which will happen in the future with interest rate cuts), which can create an environment of growth. But when they go up, every penny counts.
Interestingly, the Fed's decisions can change the perception of economic security, consumer confidence, and even the way we relate to money.
These are times of reading.
