Raising Interest Rates to Stop or Control Inflation Makes NO Sense in the Real World

The idea that raising interest rates will stop or prevent inflation is pure folly. Anyone who actually believes that inflation can be prevented or slowed by raising interest rates would be very hard pressed to prove that in the Real World. As the Federal Reserve kept raising interest rates to "stop or prevent inflation", I wrote the following:



The Federal Reserve is raising interest rates to slow or stop inflation. According to the Federal Reserve’s logic, economies that have the highest interest rates MUST have the lowest inflation rates. Conversely, economies with the lowest interest rates, MUST have the highest inflation rates.

Japan, for well over a decade, has had the lowest interest rates on the planet, almost non-existent interest rates at times. Therefore, according to the Federal Reserve’s brilliant logic, Japan MUST have had, and still have, the highest inflation rates in the world. Do they?

Mexico and Brazil, over the last decade, have had some of the highest interest rates in the world. So, according to the Federal Reserve’s brilliant logic, Mexico and Brazil MUST have had, and still have, the lowest inflation rates in the world. Do they?

- March 22, 2005