Comment by cowbolt

My understanding is that increasing the interest rate causes capital to be more likely to seek low-risk guaranteed returns. The effect of this is to disincentivize investments and economic activity in general, as capital is more likely to be "parked" in risk-free debt, rather than seeking other ways of reaching high yield. The unintuitive aspect of it is how inflation could reach 2% when capital has a guaranteed, risk-free way of generating 5%+ yield. But I suppose that could be explained by examining the growing economic inequality of the past 30+ years.