>Only if the reason for the inflation is too much economic activity, rather than too little.
Inflation is caused by a mismatch in aggregate supply and aggregate demand. Interest rates can even be somewhat effective in the case of a supply shock—whether or not that's the tool you want to use depends on how long you expect the supply shock to last.
raptorman556 t1_it80vm5 wrote
Reply to comment by hacksoncode in [OC] Inflation rate and nominal interest rate by giteam
>Only if the reason for the inflation is too much economic activity, rather than too little.
Inflation is caused by a mismatch in aggregate supply and aggregate demand. Interest rates can even be somewhat effective in the case of a supply shock—whether or not that's the tool you want to use depends on how long you expect the supply shock to last.
>Hint: today the problem is supply, not demand
The data indicates this is not the case—demand is a strong contributor to inflation and ignoring that will only cause us more problems.