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jacobobb t1_it7vafu wrote

Reply to comment by hacksoncode in [OC] Inflation rate and nominal interest rate by giteam

That's just another way of saying demand is too high. The reason demand is higher than supply is irrelevant. Higher interest rates curb consumption, full stop. Now, there may be issues on the supply side simultaneously that need addressing, but that's a productivity problem, not a demand problem.

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hacksoncode t1_it7w6tz wrote

> Higher interest rates curb consumption, full stop.

Higher interest rates curb all economic activity, both supply and demand.

Effectively, they are an attempt to create a recession... which is fine if the problem is everything is in a bubble that needs a correction...

But in conditions where the inflation is primarily due to supply shocks for reasons external to basic economics, like now, and like Japan because of their demographic collapse, there's a serious risk of creating stagflation, which is strictly worse than inflation.

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AftyOfTheUK t1_it7zi8u wrote

>Higher interest rates curb all economic activity, both supply and demand.

But not equally, which is the vital missing link here.

Activities that are currently highly profitable will continue and possibly even grow, despite the higher interest rates.

However, activities which are unprofitable, or who have a long horizon to their ROI break even point will be affected, and will shrink.

That's the whole point. We don't want to curb EVERYTYHING, and we won't. We will leave the important, valuable, today stuff going... but we will lose the less important, less valuable and/or tomorrow stuff.

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