[alxmng]

Yes. It’s counter-intuitive but both lowering and raising interest rates are inflationary. A rise in rates means more bond coupon and more bonds sold (new money), and lowering rates results in more bank lending (new money). A rise in rates is actually more inflationary, since bank lending won’t necessarily increase with lowering rates, but a rise in rates necessarily means more bonds and bond coupon from banks purchasing bonds.

The system is designed (fractional banking + government bonds) such that the money supply must continue to increase.

[dragonwriter]

> It’s counter-intuitive but both lowering and raising interest rates are inflationary.

Counterintuitive, sure, but less counterintuitively, it is also false.

> A rise in rates means more bond coupon and more bonds sold (new money)

No, it doesn’t mean more bonds sold.

(Purchasing bonds is lending; the idea that lending increases with both rate increases and rate decreases is…wrong. Borrowing, whether via banks or via bonds, is more common when it is cheaper because of low rates, and less common when it is expensive because of high rates.)

And exchange of equity instead of interest for money follows the same patterns, because those with capital will trade it for less valuable (in expected future value) equity when they’d make less money in its alternate use (lending), and demand more valuable equity for it when they’d make more lending. So, equity financing (which, despite the structural difference, also gets the money moving in the economy) is also more active with lower rates and less with higher rates.

[tomatocracy]

Some measures of inflation include the cost of a typical mortgage, so in that sense rate rises are by definition inflationary; however it's also true that raising rates puts downward pressure on economic activity, which in the medium term is disinflationary (though weird things can happen sometimes when raising rates has a signalling effect that the central bank thinks the economy is doing better, which in turn can increase economic activity).

[thethimble]

Even if your argument were true there would have to be a theoretical interest rate that minimizes inflation (how can a function increase in both directions but not have a minimum?).

That said I think there’s reason to be skeptical about the link between rising rates implying more bonds sold - particularly as you consider other factors like creditworthiness.

[alxmng]

The connection between monetary policy and inflation is weak. But the connection between how the monetary system is structured and an ever increasing money supply is clear and factual.

Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation. So the tool used to reduce bank lending creates money, and increasing bank lending creates money. Both roads lead to the money printer.

The following points are taken from https://www.reddit.com/r/mmt_economics/comments/wchq55/raisi...

1. When central banks raise interest rates, this means governments spend more on their interest payments. This translates into increased income for bondholders. Higher incomes lead to more consumer demand, pushing up prices. Similarly, banks benefit from higher interest payments from the Federal Reserve. In other words, the interest from the higher interest rates goes to someone in the economy, and their demand increases rather than decreasing.

2. Interest rates are a cost for businesses. When central banks raise interest rates, businesses pass this new cost on to consumers in the form of higher prices, which is inflation by definition.

3. Higher interest rates make it harder to start a business and harder to hold inventory. This reduces supply, leading to higher prices aka inflation.

4. Finally, MMT economists point to the fact that there is no empirical research at all showing that higher interest rates decrease inflation. In fact, the correlation runs in the opposite direction.

[dragonwriter]

> Some MMT theorists suspect rising rates is at least not price deflationary as is assumed by Keynesian monetary theory. And the basis is simple: An increase in debt interest has to be serviced by money creation.

An increase in interest rates is not an increase in interest, because it decreases borrowing. (And even if it did mean an increase in interest, that’s a delayed effect, the impact on borrowing is immediate.)

[alxmng]

Interest rates correlate strongly with treasury yields. https://en.macromicro.me/charts/762/us-fed-funds-rate-treasu...

To increase the federal funds rate the fed has to sell treasuries (pushing up coupon rate, which is government interest payments), or pay banks interest on reserves (give banks money), or buy assets from banks (give banks money). So from every angle, the government is creating money when it increases funds rate. https://www.stlouisfed.org/open-vault/2020/august/how-does-f...

If we zoom out, the two ways the Fed increases the rate is by giving banks free money, or pushing up bond prices (and the interest on bonds comes from new money).

Despite the enormous complexity of monetary policy, the only actual tool the Fed has underlying everything is the ability to print money.