Will central banks ultimately fail in their goal of lowering down inflation?

[dothebeats]

Not really, they don't need to drop the prices, people are somehow expecting prices to fall and I have no idea why, they just need to keep prices going up just a bit, or not at all, which is quite possible. As long as you give good high interest rates, people will use all that extra money to invest and that means there will be lack of money and that means people will keep the prices cheap to be able to sell because if they keep it high then nobody would buy it since their money is in interest.

As simple as that, it is literally a high school freshmen level mathematics and everyone should be aware of it, nothing complicated going on here.

In an ideal world where everyone plays by the rules this is what's going to happen. The reality is different, and a lot of players are not playing accordingly as they have to play for survival and not for the equilibrium in the economy. Those who have the means to buy and sell will have a rather easier time powering through rough bouts of inflation than those who do not, and that's where most complications set in. You also have the governments and companies not working together to increase wages as the price of goods and services increases. It will lead to a lot of ruin in the economy short-term and if there isn't anything that the governments and huge companies do to fix the situation, it will eventually lead to even worse inflation that is no longer signifying growth of the economy.

[uneng]

I don't understand why this measure adopted by central banks reduce inflation, because what they do is to pay more money to investors through raised interest rates, what will consequently demand governments to print more money to fulfill with their obligations, resulting in more inflation and decreasement in purchasing power. As I see there is solution for the economy on these measures.

Or am I missing anything on this whole process?

[Hispo]

I don't understand why this measure adopted by central banks reduce inflation, because what they do is to pay more money to investors through raised interest rates, what will consequently demand governments to print more money to fulfill with their obligations, resulting in more inflation and decreasement in purchasing power. As I see there is solution for the economy on these measures.

Or am I missing anything on this whole process?

When the Federal reserve or central banks increase the interest rate to decrease or de-accelerate inflation, they do not mean the interest they pay to the investors or the holder of national debt.

They mean interests of loans. Basically, what they do is to make loans more expensive for people and companies, so they cannot access money so easily to buy goods and services, this increases the demand for money and decreases the demand for goods.

For example, if you wanted to buy a new phone using credit, you would not do it if the interest of the credit is high, so you choose not to buy the phone. With less people buying and needing cash, the inflation goes slower.

If everyone had access to loans at 0% interest, all people would rush to apply for credit to buy all the want/can at the same time, increasing the demand for goods and increasing inflation.

[uneng]

I don't understand why this measure adopted by central banks reduce inflation, because what they do is to pay more money to investors through raised interest rates, what will consequently demand governments to print more money to fulfill with their obligations, resulting in more inflation and decreasement in purchasing power. As I see there is solution for the economy on these measures.

Or am I missing anything on this whole process?

When the Federal reserve or central banks increase the interest rate to decrease or de-accelerate inflation, they do not mean the interest they pay to the investors or the holder of national debt.

They mean interests of loans. Basically, what they do is to make loans more expensive for people and companies, so they cannot access money so easily to buy goods and services, this increases the demand for money and decreases the demand for goods.

For example, if you wanted to buy a new phone using credit, you would not do it if the interest of the credit is high, so you choose not to buy the phone. With less people buying and needing cash, the inflation goes slower.

If everyone had access to loans at 0% interest, all people would rush to apply for credit to buy all the want/can at the same time, increasing the demand for goods and increasing inflation.

Understood, thanks for the explanation.

But isn't it bad for business, since people are consuming less, therefore retailers are making less profit and there is less money circulating among everyone's hands? Won't it lead companies to look abroad for countries with more encouraging consuming economical policies?

Isn't it better for the economy when people are acquiring goods frequently, so there is a constant flux of money circulating and feeding every parts involved on the process? And with accessible credit lines, it should be more profitable for banks to earn with quantity over quality.

[kro55]

You also have the governments and companies not working together to increase wages as the price of goods and services increases. It will lead to a lot of ruin in the economy short-term and if there isn't anything that the governments and huge companies do to fix the situation, it will eventually lead to even worse inflation that is no longer signifying growth of the economy.

Raising wages when commodity prices rise is another mistake, and if governments and companies do so, it will cause inflation to accelerate and bring the national economy to a standstill. This is not the first time the world economy has fallen into inflation, inflation is also a cycle of the economy, and in the past, the government has also handled it well. I believe inflation will decrease but we need time, we cannot demand an end overnight. And for inflation to come down, the government has to make some sacrifices, and people like us are always their scapegoats. So when inflation hits, don't expect the government to save us but save yourself by doing more, investing in deflationary assets like bitcoin.

[MarjorieZimmermanGinger]

I don't understand why this measure adopted by central banks reduce inflation, because what they do is to pay more money to investors through raised interest rates, what will consequently demand governments to print more money to fulfill with their obligations, resulting in more inflation and decreasement in purchasing power. As I see there is solution for the economy on these measures.

Or am I missing anything on this whole process?

Inflation will never be completely suppressed by the central bank, but I think they can reduce inflation using several methods. Central banks do not demand that the government print more money to meet the criteria you mentioned, although they do have authority in this area. Each country has specific laws against the addition of printed money, certain conditions have gone through several basic factors for approval for additions. Money can never be printed according to the tastes of the central bank, because it will affect the exchange rate and cause the exchange rate to go down. The amount of money in circulation affects the exchange rate of foreign money, that's why the state cannot print as much money as possible to pay off debts.

On the other hand, adding to the minimum wage also cannot completely cut deplation or inflation. If the money in circulation cannot be controlled in a balanced way, inflation actually occurs due to continuous increases in the prices of goods and services which are unstable under certain conditions.

[Hispo]

-snip-

-snip-

-snip-

It depends whom you ask and the priorities of the government or the central bank.
There is no doubt about the important role consumption has in our capitalist systems, but when it is about the stability of a national currency it is necessary to de-accelerate a bit the economy for the sake of the system itself.

Look at it this way: if the interest rates were low during inflationary times, one of the possible consequences would be loss of trust of the currency and even to the bonds emitted by the government. The USA pays their debtors with USD and at defined interest.

If those interest become lower than the inflation rate, then nobody would have a reason to lean money to the Federal reserve, that would be a big problem, for example.

[Abiky]

The FED had been doing a good job in my opinion, they managed to increase interest rates much faster than other central banks. It remains to be seen in 2023 how this going to continue, but I think that the FED will keep reacting faster to changes in inflation. Here in Europe the ECB is reacting much slower and seems to be more concerned about the financing rates of governments. Increasing interest rates means that every time government debt is being rolled over the interest rates will increase a lot. Printing new money to save countries with too much debt is not an option anymore. Overall I do think the central banks can bring down inflation with the tools they have. The question is which is going to be their target level for inflation.

The FED's measures to tackle inflation have severely affected other countries' economies, especially when the world depends on the US Dollar as its reserve currency. It's been the most "hawikish" central bank so far. Considering that "The FED" wants to lower inflation back to 2%, we should expect more pain for the global economy.

Whenever the central banks' measures will fail or succeed, it's yet to be seen. The Russo-Ukraine war and the COVID-19 pandemic are still ongoing, so I fail to see how "The FED" and other central banks will be able to control inflation in the short term. Bitcoin was created as a solution against banks, so we'll see how this will play out in the long run. Just my thoughts

[mindrust]

They don’t really have a choice. They will either let the inflation loose, or crash the markets while fighting it. There isn’t an easy way out of this. Whenever the central banks have to make a choice between high inflation and high interest rates, they always choose high inflation. People think the interest rates are high now… in reality they are at half of what they need to be. You can’t fight inflation that way. Nobody can. At some point Powell will tap out and start QE’ing again.

[Inwestour]

Raising wages when commodity prices rise is another mistake, and if governments and companies do so, it will cause inflation to accelerate and bring the national economy to a standstill. This is not the first time the world economy has fallen into inflation, inflation is also a cycle of the economy, and in the past, the government has also handled it well. I believe inflation will decrease but we need time, we cannot demand an end overnight. And for inflation to come down, the government has to make some sacrifices, and people like us are always their scapegoats. So when inflation hits, don't expect the government to save us but save yourself by doing more, investing in deflationary assets like bitcoin.

This is a vicious circle that cannot be stopped, it all starts with energy resources and this will affect every industry, everything should rise in price, and salaries, as always, are raised last, when the company sees that its financial volumes have grown, and now they can do it without prejudice to themself.

In fact, not many people invest, for most the salary is only enough to live on and save a little for unforeseen expenses. It is for such people that inflation is the most dangerous. Inflation will come down over time, as it always does when prices go up, but it will lower the standard of living for the poor. For some period, inflation will be relatively stable and not high, but then another crisis will come again and everything will happen again.

[FanEagle]

Inflation is already going down, hence they will not fail in their goals. I believe there isn't that much time left until we are going to see under 5% inflation again, it will soon happen, probably by the end of 2023 the inflation rate will be fine.

Recession is another topic though, that's going to happen, that's the nature of dropping inflation, it has to happen but that will pass eventually when the interest rates start to go down. First lets drop inflation, then we will stop recession eventually. That's why it's quite important to focus on this rather than focus on fixing it right away, just give it some time, it will be fixed in the long run for sure.

[Hamza2424]

In my view there is not a perfect model for lowering Inflation as in centralized finance everything involves the interest until we get the alternative of interest system there is no way to support the deflationary model and i can see BTC somehow interest free mode of finance but whatever time knows better then ua what is happening or what is going to happen. Interest plays the main or lead role in ruining any model in centralized finance.

[Abiky]

They don’t really have a choice. They will either let the inflation loose, or crash the markets while fighting it. There isn’t an easy way out of this. Whenever the central banks have to make a choice between high inflation and high interest rates, they always choose high inflation. People think the interest rates are high now… in reality they are at half of what they need to be. You can’t fight inflation that way. Nobody can. At some point Powell will tap out and start QE’ing again.

I think central banks will ultimately give up when they realize they can't keep inflation under control. We can blame the COVID-19 pandemic and the Russo-Ukraine war for this mess. Now all hell will break loose, as prices will continue to soar like there's no tomorrow. The poor will become poorer, while the rich will become richer. Bitcoin was created as a solution against banks' malpractices.

If only the world switched to the Bitcoin Standard, things would've improved for the better. After all, Bitcoin is a deflationary cryptocurrency that can't be debased by any government or central bank whatsoever. Some countries are gradually beginning to adopt BTC as legal tender, so only time will tell us if central banks (alongside Fiat) will cease to exist for good. Just my opinion

[jrrsparkles]

They don’t really have a choice. They will either let the inflation loose, or crash the markets while fighting it. There isn’t an easy way out of this. Whenever the central banks have to make a choice between high inflation and high interest rates, they always choose high inflation. People think the interest rates are high now… in reality they are at half of what they need to be. You can’t fight inflation that way. Nobody can. At some point Powell will tap out and start QE’ing again.

I think central banks will ultimately give up when they realize they can't keep inflation under control. We can blame the COVID-19 pandemic and the Russo-Ukraine war for this mess. Now all hell will break loose, as prices will continue to soar like there's no tomorrow. The poor will become poorer, while the rich will become richer. Bitcoin was created as a solution against banks' malpractices.

If only the world switched to the Bitcoin Standard, things would've improved for the better. After all, Bitcoin is a deflationary cryptocurrency that can't be debased by any government or central bank whatsoever. Some countries are gradually beginning to adopt BTC as legal tender, so only time will tell us if central banks (alongside Fiat) will cease to exist for good. Just my opinion

Actually the increase of interest rate worked as we expected and most fiat currencies started to recover from the dive took since 2020 for the past few weeks but it affected the end user a lot so they created the circulation of money into the economy without making any changes which benefits the people.

No economic experts accepts bitcoin as an alternative and don't know how long they will take to accept it but already people realized what is best so they are investing more than before in all the assets so we may see a revolutionary change if the trend goes on for long period of time.

[Ahli38]

I don't understand why this measure adopted by central banks reduce inflation, because what they do is to pay more money to investors through raised interest rates, what will consequently demand governments to print more money to fulfill with their obligations, resulting in more inflation and decreasement in purchasing power. As I see there is solution for the economy on these measures.

Or am I missing anything on this whole process?

The step taken by the Bank in raising interest rates is to attract people to be more interested in saving their money in the bank. The government and the banks have printed too much money during the Covid pandemic. and this step was taken in an effort to make the economic movement or cycle in society continue in the midst of a pandemic. so that in various countries of course we are no strangers when the pandemic takes place the government continues to provide assistance in the form of money to its people. and it is effective because it keeps the economy in the community running well even during a pandemic.

However, the effect was only felt when the pandemic ended. that is inflation. Inflation occurs due to many factors. but one of the factors is because there are too many countries printing money that is circulated. and now the government is trying to dampen or overcome the problem by raising interest rates. with the hope that people will be more interested in saving money to the Bank than spending it. so that slowly the circulation of money can be reduced little by little. But actually raising interest rates also means the government must be prepared for the next effect, namely a recession. at least that's what i understand. maybe i'm wrong. because we as ordinary people certainly do not know what is really going on. however, what is clear is that inflation today is also influenced by other factors such as wars and even natural disasters.

[Abiky]

Actually the increase of interest rate worked as we expected and most fiat currencies started to recover from the dive took since 2020 for the past few weeks but it affected the end user a lot so they created the circulation of money into the economy without making any changes which benefits the people.

No economic experts accepts bitcoin as an alternative and don't know how long they will take to accept it but already people realized what is best so they are investing more than before in all the assets so we may see a revolutionary change if the trend goes on for long period of time.

The FED's strategy seems to be working but if it decides to back down early, then everything would be nothing but lost. It's best for central banks to keep raising interest rates even if they lead us to a severe recession in the long run. Otherwise, inflation will continue to grow to a point where it can't be put under control. A good thing about Bitcoin is that it's deflationary by design. You cannot debase Bitcoin unlike traditional Fiat currencies.

If the world gradually begins accepting BTC as an alternative to Fiat (like how El Salvador has been doing lately), then banks will start losing traction until they become history. The odds of this happening are very slim, but who knows what changes will come in the future as we head into complete uncertainty? Just my thoughts