To answer the question simply the answer is BOTH.
However it's not that simple.
Each rest period is designed to allow your body to completely recover from the exercise, which takes about 2-3 minutes. This is why we use non-competing sets, for example squats followed by presses, followed by a row, each of these exercises require different muscles to perform. So while you are doing the presses and rows you are recovering from the squats.
A basic rule is the less reps you are doing the longer of a rest period that is required. So a set of 6 will require a longer rest period to fully recover than a set of 15. This is where it begins to get confusing because high reps feel more demanding than lower reps. But, the lower the reps the higher the weight lifted will be and the higher the weight lifted the more central nervous system(CNS) gets fatigued and needs more time to recover. Lower weight requires less muscle fiber recruitment and heavier weight requires more muscle fiber recruitment (or more demand on the CNS).
So while cutting your rest period short may feel like you are getting a better workout, you are actually short changing yourself because your body is not fully recovering and therefore you are not able to lift as much weight, build as much muscle, and ultimately burn as much fat.
If you still don't feel taxed enough that you need to rest, then it's time to bump the weight up and/or slow down the movements.
So that explains why taking too short of a rest period negatively affects results, but what about taking too long of a break?
Too long of a break results in not creating enough of a metabolic demand on the body to burn fat and also doesn't allow your body to ever get taxed enough to release the needed hormones to build muscle.
So how long of a rest if you are looking for fat loss? It really all depends on your goals and where you are in your fitness program. A good rule of thumb is to take 60-90 seconds rest after completing 3-4 exercises in a row. Although there will be times where we will change this to keep your body responding.
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