system
Given the following post, respond as if you're commenting on Reddit:
human
ELI5 (US) What impacts do raising/lower interest rates typically cause in relation to both the economy at large and just to day-to-day life of an individual?

Seeing some news about the Fed potentially raising interest rates (not here to talk about the likeliness or not of this) and just curious what effects on the economy adjusting interest rates might have and what effects it might have on my life.
gpt
When a bank lends money to someone, they charge a fee for the use of their money. Simple enough. But banks themselves need to obtain currency to lend. Before central banks existed, that money came from depositors, and to some extent, it still does. But what do you do when all your depositors want their money back at once? You've lent that money out, it's not just sitting in a room somewhere.

So, enter central banks, like the Federal Reserve. They have the legal power to create money from nothing, but lending it to qualified banks. But the banks borrowing from the central bank also pay interest. That rate of interest is called the 'prime rate', or in the case of the Federal Reserve, America's central bank, the Federal Funds Rate.

In the U.S., the Federal Funds Rate is set by the Open Market Committee of the Federal Reserve Board of Governors, basically a meeting of the various government appointees and private bankers who make up the Fed. They analyze economic and employment data, and decide what rate they want to set. When they raise the rate, banks pay more interest to borrow funds, and those costs are passed down to other borrowers, so that the bank can continue to protect their margin of profit. When they lower the rate, bank borrowing becomes cheaper, and they're (arguably) induced to lower rates paid by their clients, making it less expensive to borrow money.

So, in general, expensive debt is a disincentive to invest, and cheap debt is an incentive to invest. This works through two different mechanics. Expensive debt encourages savings, because you're going to earn money just from depositing money into a savings account or other bank instrument, like a CD (Certificate of Deposit, effectively a loan you're making to the bank). Really, what the Fed (and other Central Bankers) want is stability. They want a stable rate of inflation, (typically they target 2% per year), and unemployment below 5%. If the rates are kept too low for too long, you can overheat the economy with cheap debt, and you start debasing the currency and creating asset bubbles. This is what happened in the lead-up to 2008 (among other problems). If you keep interest rates too high for too long, you can stifle the economy, effectively paying people for holding cash, and driving more leveraged businesses (those carrying more debt) out of business.

In personal terms, don't worry about it. Nobody can predict the future, and that includes central bankers. Focus on developing your skills that someone will pay you to employ, and save money consistently, and do your best to ride out the economic weather.