THE YIELD MAGIC 01 | HOW THE CENTRAL BANK ACTUALLY MOVES RATES

The Fed does not set interest rates. It sets a corridor, then pays banks to sit inside it.

The Fed does not set interest rates. It sets a corridor, then pays banks to sit inside it.

By Dorian

I. THE MISREAD

Every finance textbook still teaches it the same way: the Federal Reserve “sets” the interest rate. Turn the dial, borrowing costs move.

This is the version taught in undergraduate econ, repeated on cable news, and wrong in a way that matters…