<p>Floating interest rates are a type of interest rate that adjusts periodically based on changes in a benchmark interest rate. This rate is set by a central bank or other financial authority and is used as a reference point for various financial instruments, including mortgages, credit cards, and business loans.</p>

<h2>How It Works</h2>
<p>Floating interest rates are typically tied to a benchmark interest rate, such as the federal funds rate in the United States or the European Central Bank's refinancing rate in the Eurozone. When the benchmark rate changes, the floating interest rate adjusts accordingly. The adjustment is usually made at regular intervals, such as quarterly or annually, and is calculated as the benchmark rate plus a spread, which reflects the borrower's credit risk.</p>
<p>For example, if a borrower has a floating interest rate tied to the federal funds rate with a spread of 2%, and the federal funds rate is 1.5%, the borrower's interest rate would be 3.5%. If the federal funds rate increases to 2%, the borrower's interest rate would increase to 4%.</p>

<h2>Why It Matters</h2>
<p>Floating interest rates matter because they can significantly impact the cost of borrowing for both individuals and businesses. When interest rates are low, floating rates can provide access to cheap credit, stimulating economic activity. However, when interest rates are high, floating rates can make borrowing expensive, potentially slowing economic growth.</p>
<p>For instance, during the 2008 financial crisis, the Federal Reserve lowered the federal funds rate to near zero to stimulate the economy. This led to lower floating interest rates on mortgages and business loans, making it cheaper for households and businesses to borrow and spend. Conversely, when the Federal Reserve began raising interest rates in 2015, the cost of borrowing increased, which can discourage spending and slow economic growth.</p>