Why we're starting to see a weakened effect of monetary policy in inflation!

[CTO114]

Monetary policy used to be a very key tool that governments and especially
Central Banks use to regulate and tune economies. Monetary policy helps to manage and regulate economic phenoms like inflation where; raising rates can impede growth, and a decrease in rates help curb inflation.

But in modern times, inflation sources like; geopolitical conflicts, A.I infrastructure demand and even governments debt demand are giving inflation a more permanent nature, making it more resistant to monetary policy.

Central Banks are surely heading for a crucial era!

[abhiseshakana]

in other word we can say that formula to cure inflation and other economic problem now is seem to be uneffective which mean the formula need an update and upgrade. Previously inflation was influenced by domestic demand cycle formula to cure is simple by increase interest rate so consumption slowing down and inflation can be surpresed but nowdays, sources of inflation more structural and global,lie your explanation, relates to geopolitical conflict, supply chain disruption, debt based economic growth and high complext interconnectedness of global financial, which make inflation more stubborn and difficult to control use old formula.

I see another problem, when government / sentral bank want to apply economic theory or researcher want to test new economic theories its application not easier because economy is not closed laboratory, even central bank can not test policy without real world consequences. Every major economic experiment takes years to see its effectiveness. A country economy can be a testing ground for an economic policy but there are success and fail which leads to unemployment, asset bubbles, crisis and long term inequality even before economists understand side effect of their theory. Central bank must make quick decision in the world that change faster and full of uncertainty than economic theory can be safely and accurately tested.

[CONVOAI]

I am sure it is not as easy as it used to be to completely control current inflation by simply raising or lowering interest rates  because a large part of current inflation is created by supply chain problems geopolitical tensions instability in energy markets, and technology dependent infrastructure needs. Even if central banks can reduce demand by raising interest rates investment and economic growth are often harmed but the main problems remain. On the other hand if rates are cut too quickly excess liquidity can be created in the market and inflation can become more permanent. Therefore in the future governments will have to pay more attention to increasing production capacity energy security supply chain stability and responsible fiscal policies or central banks alone will not be able to handle this pressure.

[Smartprofit]

In my opinion, lowering the key interest rate actually increases inflation... And raising the key interest rate, on the contrary, is a way to combat high inflation. 🙋

I agree that central bank actions now have less impact on the economy. This is noticeable... In my opinion, this is due to the fact that the modern economy is no longer essentially an economy of supply and demand. Finance has long since triumphed over production.

When the central bank lowers the key interest rate, it offers entrepreneurs cheap loans. But this doesn't mean brilliant entrepreneurs will appear out of nowhere and create great companies. More likely, these practically free loans will be taken by mediocre entrepreneurs and create mediocre companies. For brilliant entrepreneurs, cheap money is not the most important thing. And cheap money cannot cure an already ailing economy. 🙅