'Recommended: Increasing Interest Rates as a Countermeasure Against Inflation Shock'

ANU Crawford School of Public Policy Warwick McKibbin says central banks should prioritise dealing with the high "inflation shock" worldwide by increasing interest rates. "The financial parts of the Fed and other regulatory agencies need to deal with the financial instability at the same time but using different instruments," he told Sky News host Sharri Markson. "It's important if inflation isn't tamed now, the cost to the economy and low-income individuals will be far worse than the impact of higher interest rates for a shorter period."...(read more)

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Interest rates, the cost of borrowing money, have been kept low for years by central banks around the world to stimulate economic growth in a post-financial crisis environment. However, with rising inflation threatening to erode the value of savings and investments, there is now a growing consensus that interest rates need to go up to deal with the "inflation shock." Inflation is the rate at which the general level of prices for goods and services is rising in an economy over a given period. Inflation can be caused by factors such as supply chain disruptions, rising commodity and energy prices, and increased demand. However, in the current environment, inflation is mainly being driven by the short-term impact of the pandemic, which has led to supply chain bottlenecks, labor shortages, and an increase in demand for goods and services as economies reopen. In the United States, inflation has risen to its highest level in 13 years, with the consumer price index (CPI) increasing by 5.4% year-over-year in June. The UK is also facing rising inflation, with the CPI increasing by 2.5% in June, up from 0.5% in May 2020. Central banks have been reluctant to raise interest rates, as low rates help stimulate spending and investment in the economy. However, with inflation continuing to rise, central banks are increasingly facing pressure to raise interest rates to cool down the economy and stop price increases. Raising interest rates usually reduces spending by making borrowing more expensive. Higher interest rates increase the cost of borrowing for businesses, meaning that they may cut back on spending on investment projects or reduce their workforce. For consumers, higher interest rates mean that borrowing for things like cars and homes becomes more expensive. This can reduce demand, putting downward pressure on prices and helping to reduce inflation. While higher interest rates may have some negative effects on the economy in the short-term, they are necessary to deal with inflation shocks. If inflation is allowed to continue to rise unchecked, it can lead to higher prices, lower purchasing power, and ultimately can destabilize the economy. Another downside is that low interest rates can incentivize riskier investments, causing a market bubble that could burst and lead to a recession. In conclusion, rising inflation is finally prompting central banks to consider raising interest rates after years of low and even negative interest rates. This will increase borrowing costs, leading to reduced spending, which can help moderate inflation. However, a careful balance is needed to ensure that any rate rises do not cause undue strain on households or businesses. Interest rates must be carefully calibrated to maintain financial stability and help the economy grow over the long term. https://inflationprotection.org/recommended-increasing-interest-rates-as-a-countermeasure-against-inflation-shock/?feed_id=83518&_unique_id=6428583511680 #Inflation #Retirement #GoldIRA #Wealth #Investing #6323133206112 #fb #msn #opinion #sharrimarkson #yt #InvestDuringInflation #6323133206112 #fb #msn #opinion #sharrimarkson #yt