How Central Bank Interest Rates Work
By Allen Krewzz
What the Policy Rate Actually Controls
How the Decision Gets Made
Why Rates Go Up
Why Rates Go Down
How the Effect Spreads Through the Economy
A rate change does not affect the economy instantly. There is typically a lag of months between a policy decision and its full effect showing up in everyday economic conditions, which is why central banks try to act ahead of problems rather than react to them in real time.