ELI5: Why are interest rates so high

Interest rates are high because the government is trying to slow down how fast prices are going up (inflation).

Imagine you and your friends are all trying to buy the same limited edition toy. If everyone has lots of money (high demand), the seller can charge more for the toy. That's like inflation: prices go up because everyone wants to buy things.

Now, imagine the government is like a referee trying to keep the game fair. If prices are going up too fast (inflation is too high), the referee (government) can make it harder to spend money by raising interest rates.

Think of interest rates as the price you pay to borrow money. When rates are high:

• It costs more to borrow money for a car (car loan).
• It costs more to borrow money to buy a house (mortgage).
• Businesses think twice about borrowing money to expand (business loans).

• Less demand for things, so the seller can't raise prices as much.
• Slower price increases, which helps to control inflation.