What happens to consumer spending when interest rates are low?

When interest rates are low, consumer spending typically increases. This is primarily because low interest rates reduce the cost of borrowing. When consumers can borrow money at a lower cost, they are more likely to take out loans for significant purchases such as homes, cars, and other goods. Additionally, lower interest rates can lead to lower monthly payments on existing loans, leaving consumers with more disposable income to spend on other goods and services.

Furthermore, low interest rates often stimulate overall economic growth, which can boost consumer confidence. When consumers feel more secure about their financial situation, they're more inclined to spend, knowing they can access credit easily and affordably. Retailers often experience improved sales as a result, fueling further economic activity.

In contrast, when interest rates are high, borrowing becomes more expensive, which can deter consumers from making large purchases. This negative impact on borrowing can lead to decreased consumer spending and slower economic growth.