AI-assisted source check by Codex, 2026-10-08. Human editorial review not recorded.
The idea
An interest rate is the cost of borrowing or the return on lending. Monetary policy influences financial conditions; it does not set every loan rate. FEDFUNDS here is a monthly average of the effective overnight federal funds rate, not the FOMC target range.
Illustrative example
A business considering new equipment may postpone a purchase when financing becomes more expensive. With lower rates it may reconsider, depending on sales expectations.
Limits
Effects take time. Existing fixed-rate loans may not change. Supply shocks, fiscal policy and confidence can offset the effect; a rate change does not guarantee a stock-market direction.