higher interest rates encourage more saving and less spending. If the going interest rate is 0% you're much more likely to spend money in the economy somehow -

higher interest rates encourage more saving and less spending. If the going interest rate is 0% you're much more likely to spend money in the economy somehow - goods, services, stocks etc. If the going interest rate goes up to 5% are you going to spend as much as you did? Will you keep buying stocks? Or will you cipher off some of that cash and buy the security yielding 5% guaranteed. As longs as interest rates are high why would you take the money out as cash and risk it in the market or spend it on goods and services when you can continue to make 5% guaranteed. As the interest rate goes up more people move more money out of goods, services, and riskier assets taking money 'out' of the economy.