Yeah, it does seem like the basic premise is worth questioning. The start of inflation in this cycle looked like a supply shock. Why is the discouraging investment the right response to that?
Raising rates still helps to maintain price stability even if it is a supply shock, it just does it via demand destruction.
The aim is to stop inflation i.e. achieve price stability. Keeping unemployment low is a nice bonus if it can be done.
Also although the start of the inflation seemed to have been a supply shock due to the pandemic, whether that has continued to be the cause vs. the pandemic spending, isn't so clear now. Of course, the war in Russia and now the Middle East isn't helping the supply side either.
Yeah, and that last part is where it gets confusing to me. If it is no longer just a short term supply shock, you'd actually want investment and production expansion. Those pressures seem to be in tension with interest rate increases that have the effect of deferring investment.
Presumably there is some point where raising the cost of investment is not desirable, despite relatively high prices.
The aim is to stop inflation i.e. achieve price stability. Keeping unemployment low is a nice bonus if it can be done.
Also although the start of the inflation seemed to have been a supply shock due to the pandemic, whether that has continued to be the cause vs. the pandemic spending, isn't so clear now. Of course, the war in Russia and now the Middle East isn't helping the supply side either.