Well, the purpose to control the inflation is to make sure that the price of consumer goods will not go higher which is out of control. By increasing the rate , company's cost will go up , which means the price of goods will also go up, or the price consumers pay to buy the goods will go up if they pay the price of goods by making a loan. So, by increasing the rate , it will doubly hurt the consumers, with higher rate , company's cost goes up , as a result the price of goods go up, and what is worse , the cost of borrowing also goes up , and consumers end up with paying much more , which means cost of living goes up. So , rate hike is another form of inflation , I call it artificial inflation , which is always used by the government to control the budget ( pocket) of average families in the US. What if we let the market to adjust by itself ? i.e let the supply and demand to reach an equilibrium point by the market force without any artificial interference by the government through the method of rate hike ? When the price goes up , people will spend less, and there will be more supply than demand, and the price will drop by itself.
When the price goes up more companies will expand the capacity to manufacture more goods, and as a result supply is more than demand , and the price will drop by itself. By hiking the rate , the money goes to the government , and companies can not make the needed profit to expand capacity so that more goods will come to the supply side. On the contrary, if we let the market force play its roll, as a result of inflation , companies will have the revenue to expand and more goods to the market , and price will drop eventually. Is the US market a real free market ? not at all !!! |
