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I think the purpose of raising interest rates is mainly to bring inflation expectations down and stop the wage price spiral. If central banks fail to achieve th
by fauigerzigerk 4y ago
I think the purpose of raising interest rates is mainly to bring inflation expectations down and stop the wage price spiral. If central banks fail to achieve that goal then inflation is going to last many more years.
Nobody expects interest rate hikes to have an immediate, direct effect on prices. The immediate effect it is supposed to have is not on energy prices but on wage negotiations.
- fleddr 4y agoThe current inflation isn't caused by wages, it's caused by energy prices.
- fauigerzigerk 4y agoExactly, energy and the aftermath of covid. But central banks can't do much about that. What they're trying to do is stop the next round of inflation that would be caused by wage rises if everyone is fully compensated for the current round of inflation expecting the round after that to follow suit. If these expectations become entrenched the cycle is very hard to break. Only a severe recession with high unemployment will work at that point and nobody wants that.