more money in the economy drives inflation, which largely affects those with less disposable income
This is why in a hot economy we raise rates, and in a not economy we lower them
(oversimplification, but it is a commonly provided explanation)
This is why in a hot economy we raise rates, and in a not economy we lower them
(oversimplification, but it is a commonly provided explanation)
Another way to look at this: Low interest rates can induce demand and drive inflation. But they also control the rates when financing supply-side production; so they can also ramp up supply to meet increased demand.
1. Not all goods and services are like this, obviously. Real estate is the big one that low interest rates will continue to inflate. We need legislative-side solutions to this, ideally focused at the state and local levels.
2. None of this applies if you have an economy culturally resistant to consumerism, like Japan. Everything flips on its head and things get weird. But that's not the US.
Not necessarily. Sure, it that money is chasing fixed assets like housing but if that money was invested into production of things to consume its not necessarily inflation inducing is it? For example, if that money went into expanding the electricity grid and production of electric cars, the pool of goods to be consumed is expanding so there is less likelihood of inflation.
People are paid salaries to work at these production facilities, which means they have more money to spend, and the competition drives people to be willing to spend more to get the outputs. Not all outputs will be scaled, those that aren't experience inflation, like food and housing today