Interest is the rental price of money: the terms depend on who borrows and for how long.
Go deeper
The Federal Reserve sets a target range for the federal funds rate, an overnight rate between financial institutions. That policy rate influences other borrowing costs and broader financial conditions. Changes can affect spending on homes, business equipment and other purchases, and eventually influence employment and inflation.
There is no single interest rate paid by everyone. A mortgage rate, a credit-card rate and a savings rate can move differently. Longer-term rates also reflect expectations about future policy and the economy. The effect of a policy decision therefore depends on financial conditions and how households and businesses respond over time.
Make it concrete
Hypothetical example: at 5% simple annual interest, borrowing $1,000 for one year costs $50 in interest before fees. At 6%, it costs $60 under the same assumptions.
When you read a headline
A Fed rate change does not guarantee an equal or immediate change in every loan rate. Distinguish the policy target from an actual borrowing offer.