Interest rates affect debt. The higher the interest rate(s) the less debt people are willing to take on. Debt is the lube that keeps the economic wheels spinning.
If you can borrow for 5% but can make 20% return on that money, then you obviously are heavily incentivized to borrow at 5%. If you can borrow at 5% but can only make 6%, you are not really incentivized to borrow. This means less purchasing will happen, slowing down the economy.
To think about it another way, which might help: borrowing is moving money from the future to today. To do that costs you something. The more it costs, the less likely you are to do it.
Credit Cards move money from 30 days in the future to today without much cost(and in the US often incentivized with rewards/cash back, etc). As soon as 31 days happen, the cost to move that money forward in time is suddenly 20+%, making it ridiculous for anyone with a clue to borrow money on credit cards past 30 days.
Mortgages move up your house purchase by up to 30 years. If it costs you a lot more to borrow today than it did a few years ago, you are much less likely to move up that purchase.
The same is true for companies and everyone else. The more it costs to borrow, the less likely you are to borrow, decreasing spending today.
If you can borrow for 5% but can make 20% return on that money, then you obviously are heavily incentivized to borrow at 5%. If you can borrow at 5% but can only make 6%, you are not really incentivized to borrow. This means less purchasing will happen, slowing down the economy.
To think about it another way, which might help: borrowing is moving money from the future to today. To do that costs you something. The more it costs, the less likely you are to do it.
Credit Cards move money from 30 days in the future to today without much cost(and in the US often incentivized with rewards/cash back, etc). As soon as 31 days happen, the cost to move that money forward in time is suddenly 20+%, making it ridiculous for anyone with a clue to borrow money on credit cards past 30 days.
Mortgages move up your house purchase by up to 30 years. If it costs you a lot more to borrow today than it did a few years ago, you are much less likely to move up that purchase.
The same is true for companies and everyone else. The more it costs to borrow, the less likely you are to borrow, decreasing spending today.