The ripple

1Their life

A few weeks after the Fed raises rates, Jordan's credit card statement shows a higher rate. Maya's savings account pays a little more. And Maya, who has started looking at small condos, notices that the mortgage rates online have moved too, though not exactly the way she expected.

One decision, three different places it shows up.

2How it works

Some rates move right away. The prime rate is set by banks. When the Fed moves, banks usually announce a matching change to prime the same day, and it takes effect right away, often the next day (chapter 3). Most credit cards are tied to prime, so Jordan's rate follows within a billing cycle or two. Many home equity lines of credit (a credit line you borrow against the value of your home) work the same way.

Some rates move slowly. Banks decide what to pay on savings accounts. When the Fed raises rates, they often raise savings rates too, but usually later and by less. When the Fed cuts, savings rates tend to come down.

Mortgages follow a different rate. A 30-year fixed mortgage isn't directly tied to the Fed's rate. Mortgage rates tend to follow the 10-year Treasury yield: what investors earn for lending to the US government for 10 years. That yield moves with what investors expect for inflation and growth over many years, not just today's Fed decision. So mortgage rates can rise even when the Fed cuts, if investors expect higher inflation or a stronger economy ahead.

The dollar. When US interest rates rise compared with other countries, investors around the world often want to hold dollars to earn that higher rate. More demand tends to push the dollar up. A stronger dollar makes imports cheaper for Americans and US goods more expensive for buyers abroad.

Gold. Gold pays no interest. When rates on savings and bonds rise, holding gold means giving up more income, so higher rates often weigh on gold. Often, not always: other forces, like fear or central banks buying gold, can matter more.

3It really happened