I saw a newspaper headline this afternoon that said something to the effect of: Fed lowering interest rates to combat inflation. I didn’t get a chance to read it but I was thinking about it and thought that it sounded funny. When the Fed lowers interest rates, isn’t that inflation? It seems that lower interest rates give incentive to banks to borrow more money and in turn, the banks loan out more money, putting more money into the economy, thus inflating the money supply. Am I missing something here?
When the fed “lowers” interest rates, it is buying goverment bonds from private banks which increases money by, the bond amount * reserve requirement . So I have no idea how this would combat inflation…
That’s hilarious! I don’t know how they could possibly think that; are you sure it wasn’t a slip of the tongue?
The Fed pumps money into the economy when it lowers the interest rate, thereby raising the inflation rate.
The only way to keep interest rates lower than their market rate is through inflation.