Interest rates and why they move everything

An interest rate is what it costs to have money now instead of later. That single idea propagates into nearly every price in an economy.

There is no such thing as 'the' interest rate

There are many, and they do different jobs. As of August 2026:

• The federal funds rate: 3.50–3.75%. Set by the Federal Reserve. An overnight rate between banks. The Fed controls this one directly.
• The 10-year Treasury yield: 4.695%. Set by the market. What investors demand to lend to the US government for a decade. The Fed influences it; it does not set it.
• The 30-year mortgage rate: 6.67%. Set by the market, priced off long-term yields plus a spread for prepayment, credit and servicing.

Why rates move asset prices

Any asset is worth the cash it will produce in the future, converted into today's money. That conversion is done by discounting — dividing future cash by a rate that reflects what you could otherwise earn.

This is why rising rates hit fast-growing companies hardest. Their value is concentrated in cash flows far in the future, and distant cash flows are the most sensitive to the discount rate. A utility earning steady money today is affected far less.

The chain of transmission

1. The Fed changes the overnight rate.
2. Short-term borrowing costs move almost immediately — credit cards, floating-rate loans, business credit lines.
3. Expectations about future short-term rates shift, moving longer-term yields.
4. Mortgage rates, corporate borrowing costs and the discount rate applied to equities follow.
5. Household and business spending decisions change — slowly, over quarters, not days.
6. Employment and inflation respond, with a lag typically measured in a year or more.

What to watch

• The 10-year Treasury yield, which prices long-term borrowing across the economy.
• The gap between short and long yields. When short-term yields exceed long-term ones, the market is expressing a view about future growth.
• What the Fed says, not only what it does. Expectations move markets before decisions do.