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.
Let's take an extreme example. If banks offered everyone 0% interest mortgages with 100 year terms and no credit checks, how many more people would want to buy a house? A lot! It would take decades for builders to build enough houses to meet that demand. In the meantime, house prices would go up by a factor of 10, along with wood and other building materials. Meanwhile everyone who already owns a house is cash out refinancing their now multi-million dollar home, and suddenly everyone you know who was a homeowner at the beginning of 2023 is now a million dollars richer and spending it quickly.
The same with businesses. Let's say you're a growing business. Things are good and you've been investing your 10% profits each year into hiring. Now banks decide that all decently profitable businesses can have that same 0% interest mortgage with 100 year term. Why not double, triple, quadruple your team? You could achieve your goals so much faster! But then the banks are offering all of your competitors the same deal. But there's not enough talent to go around.
Suddenly you're in a bidding war for decent sales guys and the starting price is a million dollar salary. And those million dollar sales guys are spending their salary, competing with other million dollar sales guys for shit they don't need - the price of everything goes up.
This is an extreme example to illustrate WHAT JUST HAPPENED with record low interest rates. The economy was being heated up by very very cheap money. Inflation started getting out of control.
Now, if you were in the above hypothetical scenario, you might say "Hey maybe we shouldn't give out all those crazy loans, people are going crazy with all of this money, and it's kind of fucking everything up." And you would be right.
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.