As one of the single most pervasive and important price in any economy, interest rates influence choices over whether to consume in the present or to delay it for the future. As such, rates of interest provide a guide on how much to consume today or in the future. When interest rates rise, current consumption becomes more costly instead of delaying it for the future consumption. Individual preferences for the distribution of consumption over time are affected by many variables, including age. Children tend to have higher preferences for current consumption than adults who may be contemplating retirement.
Adults tend to require a lower interest rate to forgo current consumption and save more.
Now, central banks create credit through purchases of an existing bond as part of what is known as open market operations. This infusion of new credit allows companies or individuals to gain access to currently available resources without another party having to give up new savings. Consequently, it upsets the balance between voluntary saving and investment that would exist in free and open markets. As interest costs are artificially caused to fall, there will be more borrowing for investment purposes. This starts an artificial and unsustainable boom in capital spending leading to less resources available for capital consumption.