No, the market sets the interest rate. The government issues bonds to fund the government, and they have to offer an interest rate high enough to get buyers for all of the bonds they are selling.
This gets to crux of the matter — market power. Some countries have greater power than ‘the market’ due to their military reach or trade. The US is an extreme example — international trade is largely conducted in their currency and they will and have used their hegemonic military power to maintain that. The USD interest rate is set fundamentally by the Fed. Even other sovereign states with less geopolitical power can also maintain their interest rates by their central banks voting what rate to set them at. The market effect, for them, tends to be the foreign exchange rate of their currency will vary to offset the change in interest rate. That will have some market related limits and is why many countries tend to follow the US Fed’s interest rate decisions. To address the technical aspect of ‘finding borrowers’ the central banks of their own currency tend to be the borrower of last resort and this is why the market moves to the rate that the Fed sets — because the values of existing debt will move
> The Federal Open Markets Committee sets the federal funds rate—also known as the federal funds target rate or the fed funds rate—to guide overnight lending among U.S. banks.
Why does the interest rate end up being close/near/the same as the overnight lending rate the Fed sets? Because why would anybody want any kind of risk when you can get XYZ interest rate risk free overnight short term?
fjskskfj|2 years ago
riku_iki|2 years ago
and fed's function and policy is to follow the market: if inflation is high they increase rate, so at the end market decides through feedback loop
MuffinFlavored|2 years ago
Why does the interest rate end up being close/near/the same as the overnight lending rate the Fed sets? Because why would anybody want any kind of risk when you can get XYZ interest rate risk free overnight short term?