Who Sets The Rate

Central banks set a benchmark rate that ripples through the whole financial system. When inflation runs too hot, they raise rates to cool spending. When recession threatens, they cut rates to spur borrowing and investment.

The Federal Reserve meets eight times a year to weigh employment and inflation data, consumer spending, and global conditions. Markets hang on every word.

The hard part is timing. Rate changes take 12 to 18 months to fully reach the economy, so policymakers must act on where things will be a year out, which is why they sometimes get it wrong.