But the Fed's ability to affect such long-term rates is indirect. Lower interest rates tend to boost stock prices because bonds and other fixed-income investments are no longer so attractive. In addition, lower rates cut costs for companies, boosting profits. When rates go up Raising interest rates is considered an effective way to quell inflation. The Fed raised rates six times over the 11 months ending in May 2000 to keep the economy from overheating.
Unemployment tends to rise, which eases wage inflation, although at a human cost.
The lowest of short-term market interest rates, which banks charge each other on overnight loans. The Fed sets this rate by buying or selling government securities until the target level is achieved. Applies to loans made directly to commercial banks by the Fed. Because the Fed makes such loans only rarely, the rate is considered largely symbolic. Often serves as a basis for rates on other loans.