Economy

1. Raising interest rates has curbed inflation successfully in the past.

2. Dropping interest rates increases Demand, as you say, but then Supply has to catch up. While it is catching up, inflation rises more.

3. Increased economic activity creates more Demand. More inflation.



What is happening now is the same as if you stomped on a hose running water. Covid was the stomp. It sent a shockwave running back to the tap. That reflects back to the outlet of the hose.

The economy has had a big shock with Covid and the huge fiscal stimulus. Waves are booming back and forth as the economy adjusts and readjusts. But the waves do damp out after a while.

Higher interests rates are a damper, like putting fingers on vibrating strings to quiet them.