Why do interest rates change?

Answer: Central banks adjust policy rates to steer inflation

Central banks adjust policy rates to steer inflation ✓ — Correct! Central banks (like the Federal Reserve) raise or lower policy rates to manage inflation and economic activity. High inflation? Raise rates to cool borrowing and spending. Recession? Lower rates to stimulate borrowing and investment. This is a core tool of monetary policy.

Politicians set rates to win elections — Wrong. In most developed countries, central banks are politically independent to prevent short-term political manipulation. Politicians do not directly control interest rates; central bank experts adjust them based on economic data, not electoral cycles.

Interest rates are fixed by law and never change — Wrong. Interest rates are not fixed by law; they change frequently based on economic conditions. Central banks adjust policy rates, and market rates fluctuate with credit supply and demand, risk, and inflation expectations.