Interest Rate

An interest rate is the price of borrowing money, expressed as a percentage of the principal per year. It compensates lenders for delayed consumption, inflation, and default risk. Central banks set short-term policy rates that anchor the rest: the US federal funds rate, for example, was held near zero for years after 2008 and 2020, then raised to a peak range of 5.25 to 5.5 percent in 2023.

Why it matters

The interest rate is the most powerful price in the economy because every other asset is valued against it. It sets mortgage payments, corporate investment hurdles, government debt costs, and the discount rate behind stock and bond valuations. When rates rise, future cash flows are worth less today and money has a rival paying yield; when rates fall, capital pushes outward into riskier and longer-dated assets.

Economists distinguish the nominal rate from the real rate, which subtracts inflation. Real rates are what savers actually earn, and extended periods of negative real rates, as in the 1970s and early 2020s, quietly tax cash and reward hard assets.

In the gold vs bitcoin debate

Both assets are yieldless, so the real interest rate is their common gravity. Gold's strongest runs came when real rates were negative, its long bear markets when real yields were high, and bitcoin's short history shows a similar liquidity sensitivity, thriving in the zero-rate era and falling hard during the 2022 tightening. Whichever asset one prefers, the honest framing is the same: their opportunity cost is set by the bond market.