Economy N00b questions about economics

[F1980]

I asked this question before but didnt get a reply

Someone told me before that when inflation goes up higher than normal the government increases the interest rates so that less people would be buying homes, cars, etc...

then the companies will lose money then forcing them to make goods cheaper so that people can afford them?

today we learned that inflation is rising higher than expected so does that mean that the government is going to increase interest rates again?

 

[koquerelle]

@Jack V Savage will be able to help you.

 

[DrDune]

I think they should. That being said the interest on debt is already crushing, and regional banks may struggle. And we have an election coming up! Need to remember that, although the Federal Reserve isn’t political….

Or some such.

 

[nostradumbass]

Not necessarily. They probably should, or at least hold them for longer, but they were planning on 3 rate cuts this year, and as recently as the fed talk after the February inflation report, they said there's a strong chance they still have 3 cuts this year, but will have to continue monitoring, then it went up even more for the March CPI, from 3.1 January, to 3.2 February, and now 3.5 March. The goal was 2%, and they haven't gotten close to that but might cut rates anyway and let inflation run wild again.

The stock market has been on an obscene tear on rate cut optimism, so I don't know that they'd decide not to cut them to watch the stock market dump in an election year, though it is the stock market, so pumping 40% rate cut optimism might well only lead to a 5% correction if it doesn't happen.

 

[Satsui Ryu]

Kinda sorta. Interest rates by definition is the cost of money. They are used to essentially control the money supply. In practice, when the economy is in a downturn interest rates are reduced to encourage people to take oit loans for personal purchases, investments, etc. These loans increase the money supply. As the economy heats up and people are taking out all these loans, you start having the possibility of inflation. To curb that, interest rates are increased. There are situations where the economy is in a downturn and you also have inflation. That is stagflation. It happened in the 70's with the oil crisis and post COVID is a similar situation.

The Fed has been raising rates for the last couple of years to reduce the inflation.

 

[HockeyBjj]

today we learned that inflation is rising higher than expected so does that mean that the government is going to increase interest rates again?

I don’t think they’ll increase again, unless inflation gets back to 4+ annualized percent

But going into 2024 many were expecting 3 interest rate cuts. With the inflation news it doesn’t look like they’ll be bringing the interest rates down again anytime soon

 

[Jack V Savage]

I asked this question before but didnt get a reply

Someone told me before that when inflation goes up higher than normal the government increases the interest rates so that less people would be buying homes, cars, etc...

then the companies will lose money then forcing them to make goods cheaper so that people can afford them?

today we learned that inflation is rising higher than expected so does that mean that the government is going to increase interest rates again?

The point of raising rates is to slow growth, but not to cause a recession and falling prices.

The inflation numbers coming in a little hot could push back a rate cut, but there's very little chance of an actual increase. Still looks like underlying inflation is around 2.5%-3.0%, which is a little above target, though economists have long called for a target around that anyway.