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Economics question...

Could someone please explain to me why, if prices on everything go up due to inflation and people are having trouble affording the things they need, why does the gov't raise the interest rates and tell us it is to help curb inflation? Seems to me by raising the interest rates, they are adding to the list of things we can't afford.

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firefall · 61-69, M

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)

msros · F

@firefall True. I dont know why they take that decision, it really does not help.