Ep. 114: Why Interest Rates Don't Matter for Inflation

One of the absolute rock-solid articles of faith in the economics community is the proposition that increasing interest rates causes inflation to decline. If you want to slow inflation by a lot, you need to increase interest rates a lot. There is no question that increasing interest rates slows economic growth, and hurts people by doing so. The only reason to do it is because economists believe strongly that it brings down inflation.

But what if it doesn't? In this podcast, the Inflation Guy argues that neither logic nor empirical observations support the notion that increasing interest rates - especially in the absence of restricted money growth - causes inflation to decline. And the basic reason that this relationship is indeterminate is easy to understand. The IG explains.

NOTES

Last Week’s Great Podcast! Ep. 113: Real-World Crypto Escapades, Concerns, Threats, and Promises

Chart of Interest Rates vs Inflation: https://bit.ly/4eJTZly  

Blog for this month’s CPI: Inflation Guy’s CPI Summary (May 2024)

Important article: “The Inflation Management Opportunities In The Insurance Industry Today”

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