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this post was submitted on 27 Sep 2023
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I'm not sure what the other person's talking about.
It's really simple. Companies borrow money to do projects that they can't currently afford. When interest rates are low, you can start a lot more projects. When interest rates are high... those projects have more risk and need more immediate returns before your interest payments start hurting your profits.
It's kind of like 0% APR in the consumer world, "why buy later when I can buy now for basically free."
Of course, all that money companies use to start projects doesn't immediately create the business to do the work ... so the businesses doing that work previously can charge more, and the price to get them to do any work increases. That last part is the inflation...
So... if you raise the interest rates, you kill the purchase orders, which lowers demand, and then lowers prices.
That's also why raising rates too much is a scary prospect, because you can literally stall out the economy because instead of too many companies trying to start projects too few companies are starting projects and people start getting laid off because there's not enough work to go around.
Or equivalently - to raise unemployment.