This Rube Goldberg Machine Teaches You Everything You Need to Know About the Fed Rate

In September, the Federal Reserve announced they would not be increasing their rate. This made investors happy, and the stock market soared.

But why?

The Federal rate (or Fed rate) determines how often banks can lend each other money, which impacts interest rates. Since the global economic collapse in 2007-2008, the fed rate has sat near zero, and only increased once by a fraction of a percent. Since people will currently make less money on interest in savings and money market accounts, people are more likely to invest on the stock market.

Yet he impact of the Fed rate is much more complex than this. That’s why The New York Times ($NYT) built a jaw-dropping Rube Goldberg machine to explain how the Fed rate really works in the simplest terms possible. If you didn’t understand any of this before, you will now.

The Fed will meet one more time this year to determine whether not to raise their rate. If they do raise it, Wall Street will undoubtedly react negatively, as it would cause interest rates to go up and potential investors to decrease. After all, if you can make guaranteed interest in the bank without risking your money on the stock market (though at a significantly lower rate), why would you risk your money in the first place?

Share this video with your friends below, because all difficult concepts can easily be explained with Rube Goldberg machines.


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