You're assuming raising rates will drop demand for lending that's driving the inflation.
That generally works, in sane markets, when the majority of the cause driving the increased borrowing and by extension inflation, is price sensitive.
What it seems we're seeing right now, is a very large drive that's rather inelastic, and almost ignorant of the price of lending.
It will drop consumer demand, but if consumer demand isn't what's driving inflation, inflation will continue to rise, while also adding additional costs on every loan.
People can't stop buying housing/food/groceries. AI companies won't stop buying compute. It's been shown heavily how many companies will continue to borrow vast amounts even as the cost of lending has increased in bond markets. Why would raising the base lending rate cause them to stop?
Perhaps a very large rate hike, that would break their existing loans, but at that point you're talking about everyone being out of a job, and the wider economy crashing.
To me this looks like a policy decision is needed, much as happened in the 70s, not a rate increase, to resolve the drivers in the debt markets.
Could be wrong, time will tell.
That generally works, in sane markets, when the majority of the cause driving the increased borrowing and by extension inflation, is price sensitive.
What it seems we're seeing right now, is a very large drive that's rather inelastic, and almost ignorant of the price of lending.
It will drop consumer demand, but if consumer demand isn't what's driving inflation, inflation will continue to rise, while also adding additional costs on every loan.
People can't stop buying housing/food/groceries. AI companies won't stop buying compute. It's been shown heavily how many companies will continue to borrow vast amounts even as the cost of lending has increased in bond markets. Why would raising the base lending rate cause them to stop?
Perhaps a very large rate hike, that would break their existing loans, but at that point you're talking about everyone being out of a job, and the wider economy crashing.
To me this looks like a policy decision is needed, much as happened in the 70s, not a rate increase, to resolve the drivers in the debt markets.
Could be wrong, time will tell.