On Wednesday, the Federal Reserve announced that, after months of hemming and hawing, it has finally decided to raise interest rates. It’s the first time that’s happened since 2008, when the Fed cut rates to almost zero to try to nurse our ailing economy back to health. The good news is that this means our economy is finally strong enough to get back on track. But what, exactly, does raising interest rates mean? And how will it effect the economy (and our wallets)?
Turns out the answer is…complicated. And notoriously hard to explain. (Even, confusingly, if you’re the chair of the Federal Reserve). So complicated in fact that a few journalists from the New York Times were reminded of a Rube Goldberg machine, those those incredibly intricate devices built to accomplish a simple task. So they built one to explain the possible outcomes of the Fed’s decision.
Essentially, raising interest rates sets off a chain reaction in the economy, which is why a Rube Goldberg machine is such a brilliant way to visualize the effects. Things have never seemed simpler.
The entire article, which explains each step in the machine in detail, is also worth a read.