AZUZ: The Federal Reserve or the Fed is the central banking system of the U.S. Its goal is to keep the American financial system safe and stable. And yesterday, it used one of its major tools in stabilizing the economy. The Fed raised its key interest by a quarter of a percentage point. Why?
In the past few years, the American economy has slowly been growing. It's been getting stronger. And though low interest rates have advantages to consumers and business, the Fed doesn't want the economy to grow so fast that there's a lot of inflation when prices too quickly for people to afford them.
So, by slightly raising its key interest rate, the Fed tries to put the breaks on the economy, not to stop its growth but to keep that growth in check. The eventual effects on Americans can be a mixed bag.
CHRISTINE ROMANS, CNN CHIEF BUSINESS CORRESPONDENT: 2008, the height of the credit crisis, a debt implosion was wiping out whole banks, tanking the stock market and threatening to destroy the global economy.
At the edge of the abyss, regulators had to get it right. So, they tried some crazy things. Billion dollar bailouts, the likes of which we've never seen, a trillion dollar stimulus package, and in an unprecedented move, the Federal Reserve cut interest rates to zero, making the cost of borrowing money effectively free.
Fast forward to 2015, the bailouts are paid off, the stock market is back, and so is the economy, but money is still cheaper than it's ever been.
It's a key moment. The Fed raising interest rates is the final sign of the economy's return to normal. But normal might hurt a little.
When the Fed increases rates, banks raise the prime rate, a bench mark index used to set all kinds of consumer loans, credit cards, car loans, home equity lines and credit, private student loans. Mortgage rates are headed higher too. Now, they don't move in lock step with the prime rate, but they're expected to move up gradually.
For you savers, rising rates are great news. For years, you've earned next to nothing on CDs and in bank accounts.
A Fed rate hike will be a win for savers, but a loss for investors. Near zero interest rates have pushed for people into the stock market because they couldn't earn a decent return anywhere else. If higher rates make the stock market less attractive for investors, it potentially means the end of this bull market.
Brace yourself, the Fed is set to raise rates and pretty much everyone will feel it.