"Banks borrow funds from the central bank at a certain rate" Right, but banks don't have to borrow money from the Fed. Banks also have the deposits from their

"Banks borrow funds from the central bank at a certain rate" Right, but banks don't have to borrow money from the Fed. Banks also have the deposits from their customers, and so banks can make new loans based on those deposits. Last time I checked, this was roughly a 5 to 1 ratio (a bank with $1 million in deposits could make loans of $5 million) but that changes all the time, based on limits set by the Fed. But in general, right, when the Fed raises rates, consumer demand will weaken, and then that spreads to the retail sector, and then that works backwards to the manufacturing sector and all the service sector activities that support businesses in general (accounting, legal, janitors, etc), eventually slowing all economic activity.