Will interest rate hikes lead to rising inflation?
The quote comes from the chief analyst of a Canadian wealth management institution.
In our traditional consciousness, interest rate hikes are accompanied by lower inflation, and the chief analyst's claim that interest rate hikes have led to a rebound in inflation is not unreasonable.
First of all, interest rate hikes leading to inflation rebounds will only occur under specific environmental factors.
1. The interest rate hike itself is too small. Canada's previous multiple cyclical interest rate cuts were only 50 basis points. The interest rate hike itself is too small. If the inflationary pressure itself is large, this level of interest rate hikes plus unreasonable regulation may not be able to curb inflation.
2. The logic of market supply and demand. If the basic resources needed by a country's residents in their daily lives do not match the resources generated internally, then the market supply and demand relationship will lead to rising prices and increased inflation. If the supply and demand relationship is not improved or the production and own reserves are not increased, the problem of inflation may not be solved even if interest rates are raised.
3. Geopolitical factors lead to tight international supply. Similar to the second point, if core resources and materials rely on imports, then geopolitics, import and export restrictions, etc. will increase the price of imported products, or reduce the import volume, and the year-on-year increase in prices will also lead to vicious inflation.
4. Residents have poor expectations, which means that after you raise interest rates to curb inflation, people are not optimistic about your future expectations and think that your inflation will rebound, so people will hoard materials, resulting in short-term shortages of materials or circulation shortages, which will cause short-term inflation to increase. In the future, because materials are hoarded, inflation may still increase. Therefore, short-term interest rate hikes cannot suppress inflation.
In fact, when it comes to inflation, most people think that raising interest rates can suppress inflation. In fact, the relationship between inflation and interest rates is not a relationship where 2+2 must equal 4. There are many connections during this period. The central bank's regulatory ability, the self-production of core resources, reserves, net export surpluses and deficits, and even the supply and demand adjustments of individual commodities in the country, etc., can all affect inflation in the short term or even in the long term.
Although we often ridicule the "incompetence" of the Federal Reserve, we have to say that the Federal Reserve is still a "good hand" in regulating the global economy.