Economics question...

Inflation is a result of too much $$$ chasing too few goods. So, by raising interest rates it (hopefully) dampens the demand, because many things are purchased on credit. In effect, the cost of credit would reduce demand, and reduced buying would hopefully then force suppliers to lower their prices to move their inventories.

Lower prices would seem to encourage cash buyers; because they don't have to pay the extra cost for credit. But raising interest rates also gives people with cash an incentive to save rather than buy.

For a good example, look at what rising mortgage rates are are doing to the cost of real estate. With the higher interest rates, fewer people can afford to buy a home, and with reduced demand, home prices should come down.

But all of the above is chancy and may backfire because there's much more to it. Like inflation also causes employees to demand more from there employers, and higher interest rates also affect corporate borrowing. Also a lot of business and consumer credit is variable and raising interest rates on existing credit can push somme consumers and businesses over the edge. This happened just 12 or 15 years ago, and it looks like it may soon be happening again.

Inflation is too many dollars chasing static or too few goods. Nobel prize winning economist Milton Friedman said that inflation is ALWAYS caused by government; it’s a policy not a natural disaster.

When the government spends money it does not have, it either borrows it or prints it and usually a bit of both. By raising the interest rates two things happen. Our bonds (the mechanism by which the government borrows money) become more attractive to investors and the cost of money (your credit card etc) becomes more expensive and your buying slows down reducing the rate of inflation.

It is never necessary, it is always a result of government over spending.

Inflation is usually measured by the CPI.

Consumer Price Index provides data about price increases for households on average (by comparing a basket of goods).

If CPI is high , they will increase the rates.

They adjust the interest rates to fasten or slow down the economy to achieve its inflation target of 2-3 per cent over the medium term.

If nothing else changes, higher interest rates lower spending and increase savings in the economy.

Higher interest rates encourage saving and discourage borrowing and, in turn, spending. In response, companies increase their prices more slowly or even lower them to encourage demand.

Higher interest rates reduce the demand for cheap loans. This ultimately reduces the money supply, driving down inflation.

They believe that higher interest rates mean higher interest payments to the banks.. If you are in debt then the more money you have to pay to the banks the less you have to spend on other things like food, fuel, electronics.. If less money is being spent on food, fuel and other stuff there will be a drop in the sales of these other things.. That means there will be an over supply of these things and the suppliers of these things will need to lower their prices to get sales.. And if all these things start to be cheaper then that will lower inflation.. This is their idea anyway..

Of course the reason why food and fuel and electronics have been going up in price is because there is a lowering of supply of these items with the war in Ukraine cutting of millions of tons of Wheat and huge amounts of natural gas and China with it's insane Covid shutdowns is causing disruptions to it's manufacturing sector which reduces it's production and export of things like Iphones and other consumer electronics.. So this inflation has not been caused by consumers buy too much.. it has been caused by producers supply being reduced.. So as long as the supply side is failing to supply demand then raising interest rates is only going to cause more suffering to the population and will more then likely plunge the world economy into a global depression..

I just read a pretty detailed article on this. It seems the fed implemented a new policy in 2020 and completely missed the effects of the faster than anticipated recovery from Covid, increased demand from transportation shortages, pay increases, and strong job market. Stimulus exaggerated the effects of inflation. And then the fed was reactive instead of looking ahead. Jerome Powell will go down as one of the biggest failures as fed reserve chair for his monetary policies.

Because our government feeds the population to predators.

Raising interest rates makes loans more expensive, so ppl cant afford to borrow as much (or rather, banks will assess them at not being able to afford so much). This leads to less money in consumer pockets (eventually), which reduces how much they can spend.

It's an incredibly indirect and blunt bludgeon approach, but it does work to curb inflation. At the price of driving up unemployment, usually (less spending = less demand for products = less need for workers)

Everything is borrowed, business expenses, loans, car loans, mortgages even government bonds.. by raising rates they curb demand by reducing affordability across the board.
To achieve sales volumes at higher rates, prices are pushed down to an affordable level, again.. across the board.
Prices reduction is deflation. Or reduced inflation..
When demand levels off and prices stabilize they will stop increasing rates and begin further adjustments ..

Well in Canada, not sure where you are, the modus operandi of the bank of canada is supposed to be independent of government. I am told we have lower inflation than some, but the bank is rising interest beyond what some countries banks are doing. I expect that is if a home here costs close to a million dollars now, they know their limits.

Now coincidentally, we have a provincial government legislating education workers back to work, who make little compared to some. They have a union, and the provincial goverment has decided, we don't want to deal with you, we will make your right of association and strike illegal. We will go further and impose a contract, and while we know the court won't agree with us, we'll invoke a clause in the charter, notwithstanding. Pathetic excuse.

This time it's a mistake - we have supply and staffing issues driving prices higher. Not to mention rampant government spending. Fiscal tightening will exacerbate these problems, plus cause hardship amongst economically disadvantaged....but what do I know, I'm an SW Member....

They are slowing overall economic activity by raising interest rates. Lower overall activity will lesson inflation pressures but also reduce economic growth

That's what Robert Reich says. But it's not about common sense, it's about greed.

They are countering if you don’t understand I’m sorry

Because that’s their plan, destroy us financially.