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When inflation rises interest rates normally follow to try and curb it, right now this hasnt happened, which implies that this increase in prices is not going t

When inflation rises interest rates normally follow to try and curb it, right now this hasnt happened, which implies that this increase in prices is not going to last too long. I dont think its a particularly good idea to follow the advice from a country where high inflation is endemic.

jbay808 5y ago
I don't understand the reasoning here. Isn't that like saying "normally when my office gets hot the AC turns on to try and curb it. This hasn't happened, which implies that the increase in temperature is not going to last too long." ... Doesn't the lack of AC imply exactly the opposite, that the temperature rise might be more significant than usual, and perhaps the AC is broken?
88913527 5y ago
Interest rates can't go up because it would risk America's ability to re-pay its debt, as well as the debt of 'zombie' corporations, which would inevitably impact the Fed's "maximum employment" mandate. If interest rates can't rise, it's going to contribute to more inflation.
- paulpauper 5y ago
  This is debatable. A lot of debt is long-term debt that is at a fixed rate. When interest rates go up, long-term bond yields may fall or stay flat (this is called yield curve inversion).. It all depends on future perceptions of the economy. If the perception is that raising short-term rates to aggressively will hurt growth, the bond market will adapt accordingly and become inverted. This makes it easier for the government service debt and issue new debt.
  - objektif 5y ago
    There is also the political reality that there will be presidential elections soon. No president wants to see an economy slowing down.
- mostly_harmless 5y ago
  Isn't that sort of the point of raising interest rates? Makes debt more pressing to slow down money velocity and loan creation? (Thus curbing inflation). Sure, if you push the rates too high, you'll hit deflation, but the point would be to strike the balance before that happens.

jbay808 5y ago

I don't understand the reasoning here. Isn't that like saying "normally when my office gets hot the AC turns on to try and curb it. This hasn't happened, which implies that the increase in temperature is not going to last too long." ... Doesn't the lack of AC imply exactly the opposite, that the temperature rise might be more significant than usual, and perhaps the AC is broken?

88913527 5y ago

Interest rates can't go up because it would risk America's ability to re-pay its debt, as well as the debt of 'zombie' corporations, which would inevitably impact the Fed's "maximum employment" mandate. If interest rates can't rise, it's going to contribute to more inflation.

paulpauper 5y ago
This is debatable. A lot of debt is long-term debt that is at a fixed rate. When interest rates go up, long-term bond yields may fall or stay flat (this is called yield curve inversion).. It all depends on future perceptions of the economy. If the perception is that raising short-term rates to aggressively will hurt growth, the bond market will adapt accordingly and become inverted. This makes it easier for the government service debt and issue new debt.
- objektif 5y ago
  There is also the political reality that there will be presidential elections soon. No president wants to see an economy slowing down.
mostly_harmless 5y ago
Isn't that sort of the point of raising interest rates? Makes debt more pressing to slow down money velocity and loan creation? (Thus curbing inflation). Sure, if you push the rates too high, you'll hit deflation, but the point would be to strike the balance before that happens.