Rates are set with the intention of having a particular effect on the economy. Generally speaking:

Economic growth may be slowed by higher interest rates. The cost of borrowing increases, and there is more incentive to save money, so people may be more inclined to spend less.
Economic growth may be boosted by lower interest rates. People may be encouraged to spend or invest because borrowing becomes cheaper and saving money becomes less appealing.

A central bank's role is to control these functions by setting bank rates (the interest rate at which banks lend money from their reserve balances to other banks) in order to keep inflation at bay. The Federal Reserve Bank (the Fed) is tasked with maintaining price stability and employment, primarily through interest rate control.

Stay up to date with interest rate announcements by bookmarking the Central Bank Calendar.

Interest rates have a broad impact on economies and financial markets. When central banks raise interest rates, borrowing costs increase, which tends to slow down consumer spending and business investments. This often reduces inflation but can also lead to slower economic growth. On the other hand, when interest rates are lowered, borrowing becomes cheaper, encouraging spending and investment, which can stimulate growth but may risk higher inflation.

For forex traders, changes in interest rates directly affect currency values. Higher interest rates can make a currency more attractive to investors seeking better returns, leading to an appreciation of that currency. Conversely, lower rates can weaken a currency as investors look for higher yields elsewhere. Thus, interest rates are crucial in shaping market dynamics.