Just an fyi, it has nothing to do with being attractive or unattractive. “Da government” is raising interest rates to curb inflation, doing so will inadvertently affect the US treasury’s cost of borrowing, but that is only one side-affect. The cost of interbank borrowing will rise due to higher fed funds rate (which is the main intended effect), banks will ultimately pass that on to their customers (many of the loans they lend out are tied directly or indirectly to fed funds) which further disincentivizes customer borrowing (credit cards, commercial loans, mortgages, etc).
This is obviously a very high-level overview and the actual mechanics are far more complicated, but if you pay attention to the Fed’s dual mandate (full employment and price stability as a reminder), every policy decision can essentially be boiled down to that
Banks will continue to earn money on the difference between their own borrowing rates (from other banks or depositors) and the money they earn on loans and now higher-yielding government debt.
We obviously won’t talk about the numerous issues that can come up because of this but that is basically how it’s “supposed” to work
TrumpMeister99 t1_je07rkq wrote
Reply to comment by Temperature_Foreign in The economy in 2023 for dummies by Temperature_Foreign
Just an fyi, it has nothing to do with being attractive or unattractive. “Da government” is raising interest rates to curb inflation, doing so will inadvertently affect the US treasury’s cost of borrowing, but that is only one side-affect. The cost of interbank borrowing will rise due to higher fed funds rate (which is the main intended effect), banks will ultimately pass that on to their customers (many of the loans they lend out are tied directly or indirectly to fed funds) which further disincentivizes customer borrowing (credit cards, commercial loans, mortgages, etc).
This is obviously a very high-level overview and the actual mechanics are far more complicated, but if you pay attention to the Fed’s dual mandate (full employment and price stability as a reminder), every policy decision can essentially be boiled down to that
Banks will continue to earn money on the difference between their own borrowing rates (from other banks or depositors) and the money they earn on loans and now higher-yielding government debt.
We obviously won’t talk about the numerous issues that can come up because of this but that is basically how it’s “supposed” to work