0% interest rates increase the amount of credit taken. The increased credit greatly expands the money supply. The expanding volume of money lessens its value, thus allowing inflation to rise. Therefore the central bank hikes the interests rates. Now less credit is being taken, and more debts are being repaid, and whenever a debt is repaid, the added money in the money supply will disappear, thus decreasing the money supply and thus the inflation.
Even if the inflation drops to 0%, as long as the incomes do not keep up with the price increases that have happened over the past 2 years or so, the pain remains real and we’re headed to deflation.
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0% interest rates increase the amount of credit taken. The increased credit greatly expands the money supply. The expanding volume of money lessens its value, thus allowing inflation to rise. Therefore the central bank hikes the interests rates. Now less credit is being taken, and more debts are being repaid, and whenever a debt is repaid, the added money in the money supply will disappear, thus decreasing the money supply and thus the inflation.
Even if the inflation drops to 0%, as long as the incomes do not keep up with the price increases that have happened over the past 2 years or so, the pain remains real and we’re headed to deflation.