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Inflation is high because of supply shortages and lower production, increasing rates would mean increasing the cost of setting up new supplies or production lin
by naruvimama 4y ago
Inflation is high because of supply shortages and lower production, increasing rates would mean increasing the cost of setting up new supplies or production lines.
Manipulating interest rates works when under otherwise normal condition the government wants to prevent overheating economy or to provide stimulus during a down cycle.
It is not immediately clear if the rate increases is going to help increase production or stabilise supply chains, perhaps just the contrary.
- chii 4y ago> Manipulating interest rates works when under otherwise normal condition back in the oil crisis of the 70's, the inflation was high because oil embargo made everything that need oil (which was everything) more expensive. Couldn't you make the same argument back then, that increasing interest rates isn't going to end the embargo and lower inflation? And yet, the then Fed chair did increase interest rate to combat inflation (granted, the inflation back then was much worse than now). So perhaps this time, it's different - covid supply shocks playing out is not going to get resolved by interest increases. By increasing rates, the only result is to reduce demand, which is just another way of saying those who can't afford it will have to sacrifice, and lower their quality of life.
- naruvimama 4y ago