Interest rate movements are based on the simple concept of supply and demand.

If the demand for credit (loans) increases, so do interest rates. This is because there are more buyers, so sellers can command a better price, i.e. higher rates.

If the demand for credit reduces, then so do interest rates. This is because there are more sellers than buyers, so buyers can command a lower better price, i.e. lower rates.

When the economy is expanding there is a higher demand for credit, so rates move higher; whereas when the economy is slowing, the demand for credit decreases and so do interest rates.

Inflation drives interest rates

Higher inflation is associated with a growing economy. When the economy grows too quickly, the Federal Reserve increases interest rates to slow the economy down and reduce inflation. Inflation results from prices of goods and services increasing.

When the economy is strong, there is more demand for goods and services, so the producers of those goods and services can increase prices. A strong economy therefore results in higher real-estate prices, higher rents on apartments and higher mortgage rates.