[coralreef]

Right, it doesn't necessarily grind the economy to a halt; it simply forces investments to be worthwhile, because now they have to generate enough return to satisfy a higher interest rate. If money is not cheap, speculation is less rampant, but also risk taking is more expensive; this is a forcing mechanism for efficiency.

The interest rate (cost of money) simply returns to a supply/demand market equilibrium. The economy possibly smoothens out, rather than giving us artificial boom and bust cycles thanks to inefficient central bank policies.