Eli5 – Isn’t raising rates just a temporary inflation fix? Because the dollars that buy bonds will eventually need to be paid back as even more dollars
In: 5
Pretty much all of macro policy is to keep things within certain boundaries. There is no permanent “fix” to inflation – the idea (this time) might be to dampen demand and consumption enough so that supply catches up. Even if inflation stays at the mid to high single digits for a year or even two years, it will likely be painful but not catastrophic.
Many people appear to be, at least in the US and probably most of the large economies, sort of used to the super low interest rate and low single digit inflation of the last quarter century. Most developing economies do OK with 6-8% inflation for decades.
What needs to be managed are the underlying causes of inflation. This appears to be supply chain disruptions in China (due to Covid lockdowns), fuel/food/fertilizer shortages (Russia/Ukraine) and the pressure this puts on many products globally.
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