how are interest rates determined 
at eight annual meetings a group from the fed examines economic indicators such as the consumer price index cpi and the producer price index ppi and determines if interest rates should go up or down or stay the same those who support high rates are hawks while those who favor low rates are labeled doves high interest rates make borrowing less attractive as a result consumers become less likely to make large purchases or take out credit the lack of spending equates to lower demand which helps to keep prices stable and prevent inflation in contrast low interest rates entice consumers into taking out loans for cars houses and other goods consumers spend more and ultimately inflation occurs it is the fed s responsibility to balance economic growth and inflation and it does this by manipulating interest rates the bottom lineinflation hawks adopt policies to quickly stamp out inflation such as aggressively raising interest rates and other contractionary measures inflation hawks believe that low target inflation rates around 2 to 3 should be maintained even it comes at the expense of economic growth or employment those with the opposite policy stance are known as doves 