Interest rate changes have a significant impact on the economy. Lower rates stimulate borrowing and spending. This boosts economic activity and can lead to inflation. Higher rates, on the other hand, discourage borrowing and slow down spending. This can dampen economic growth and help control inflation. The Federal Reserve uses interest rates as a tool to manage the economy. Businesses and consumers adjust their spending habits in response to changes in interest rates. The stock market also reacts to interest rate changes, as they influence the cost of borrowing for businesses. Overall, interest rates play a crucial role in shaping the economy.