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The Fed is raising interest rates to execute a deliberate policy to target aggregate demand by making the price to borrow money more expensive. However, for ev
by bubbleRefuge 4y ago
The Fed is raising interest rates to execute a deliberate policy to target aggregate demand by making the price to borrow money more expensive. However, for every borrower, there is a lender. So money is redistributed from borrowers to lenders. Secondly, the US Federal government is a net payer of interest. So, they are paying out much more in interest to Federal debt holders. This increases income, increases deficits, and stimulates demand (mostly for rich people who earn interest). Is this a vicious feedback cycle ? Nobody is really talking about it but a select few. See Argentina. Not going to well as far as fighting inflation with monetary policy over there.
- AnimalMuppet 4y agoWhat you say has an element of truth, but you have to consider time spans. That is, I've borrowed money on my credit card. The interest rate could go up next month. But I've also borrowed money in the form of the fixed-rate mortgage on my house, and the interest rate isn't going up until I take out a new mortgage to buy a different house. The federal government borrows money in a bunch of time spans, from 3-month notes to 30-year bonds. The 30-year bonds are sensitive to what people think the interest rates are going to do over the next 30 years, not to what the interest rates do this month.