Interest Rate

The cost of borrowing money, expressed as a percentage of the principal, or alternatively the return earned by a lender or depositor. Central banks like the Federal Reserve set benchmark short-term rates (the federal funds rate) to influence economic activity -- lower rates stimulate borrowing and spending, while higher rates cool inflation. Interest rate decisions are among the most market-moving events on the economic calendar, with traders parsing every word of Fed statements for clues about future policy.