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Clarke Co, Iowa | In the short run interest rate increases have no effect on the consumer price index. Increasing interest rate does not lower the cost of food, fuel, repairs, rents, health cost, or anything else that is not financed. If you're hungry you buy food interest rate makes no difference. If your car needs gas interest rate makes no difference. Has anyone ever asked what the interest rate was before going to the doctor?
What it does do is reduce everyone's net worth by depressing the values of everything that is generally financed or purchased for investments. Things like your homes, stocks, bonds, and real-estate. The prices of these four things are not included in inflation figures. If you are thinking about buying a home or real-estate interest rate is one of the first things most people check. The higher the interest rate the less everyone is willing to pay.
Using interest rate to control inflation is a lot like running your car into a tree to stop. | |
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Increasing interest rate to stop inflation????
