How does the Federal Gov. determine interest rates?

Question

Pretty straight forward. I want to know how they go about and what they calculate to get interest rates.

Answer 1

At each of its meeting, the Federal Reserve examines a number of indicators of current and prospective economic developments. Then it must decide whether to alter its target for the federal funds rate.

An actual decline in the rate stimulates economic growth, but an excessively high level of economic activity can cause inflation pressures to build to a point that ultimately undermines the sustainability of an economic expansion.

An actual rise in the rate curbs economic growth and helps contain inflation pressures, and thus can promote the sustainability of an economic expansion; too great a rise, however, can retard economic growth too much. The Federal Reserve’s actions on the target federal funds rate are undertaken to achieve the maximum rate of economic growth consistent with price stability and moderate long-term interest rates.

Check this out if you want to know the details;
http://www.federalreserve.gov/pf/pf.htm

Answer 2

This is what they do. The politicians get together and whoever has the most amount of change in their pocket chooses the interest rates.

Answer 3

Here's how : http://video.google.com/videoplay?docid=-7371253996117324045&q=CIA