How does raising interest rates control inflation?

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When central banks raise interest rates, the impact is felt far and wide. Mortgages become more expensive, house prices might fall and unemployment can rise. So why do central banks do it? This film tells you why.

00:00 – Why should you care about rising interest rates?
00:45 – What are interest rates?
01:36 – What do central banks do?
02:14 – Why do central banks raise interest rates?
03:12 – How do raised interest rates affect consumers?
04:30 – How do raised interest rates affect businesses?
05:20 – What are the risks of raising interest rates?
06:05 – How do interest rates affect inflation?

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Watch our video on whether higher inflation is a cause for concern: https://econ.st/3ttKLnN

Listen to our podcast on whether interest rates will trigger a recession in America: https://econ.st/3M0x2ef

Why interest rates may rise sharply to fight inflation: https://econ.st/3NghS60

Which housing markets are most at risk? https://econ.st/3z8FeXi

Is Turkish President Erdogan’s monetary policy as mad as it seems? https://econ.st/3t797Du

Why are investors worried about recession in America? https://econ.st/3z51nFX

Do the poor face higher inflation? https://econ.st/3NGON3G

Has the Federal Reserve made a mistake on inflation? https://econ.st/3t5YTDl

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50 COMMENTS

  1. 🌹As an investment enthusiasts, I often wonder how top level investors are able to become millionairs off investing. I do have about $55k amount of capital to start up but I have no idea what strategies and direction I need to approach to help me make decent returns

  2. I am regretting not investing in stocks ever since but still grateful i kept money in the money market. With about $200k maturing soon, i plan investing in the stock market. What stocks should I look into as a newbie to safely grow my money?

  3. The solution is simple: get rid of central banks and allow for the free market to do it's thing, making use of a type of hard money. In other words – follow the austrian school of economics instead of the ridiculous keynesian school which has been proving again and again to fail.

  5. With Market tumbling, Inflation Soaring, Is the stock market actually getting better or could this be the regular new year market manipulation to entice new investors? I'm currently sitting on $500k inheritance and just wondering what better assets than stocks to invest in right now

  7. The stock market is a way to hedge against inflation. Most notably amidst recession, investors need to understand where and how to allocate funds to hedge against inflation and still make profits.

  8. I recommend diversifying your investments by considering stocks alongside real estate. During a recession, there are potential buying opportunities in the stock market if approached cautiously. Additionally, market volatility can offer short-term buying and selling opportunities. However, please note that this is not financial advice. It's important to be proactive in investing as cash may not be the most advantageous option during these times.

  10. Given the persisting global economic crisis, it's essential for individuals to focus on diversifying their income streams independent of governmental reliance. This involves exploring options such as stocks, gold, silver, and digital currencies. Despite the adversity in the economy, now is an opportune moment to contemplate these investment avenues.

  11. I wasn't financial free until my 40’s and I’m still in my 40’s, bought my third house already, earn on a monthly through passive income, and got 4 out of 5 goals, just hope it encourages someone's that it doesn’t matter if you don’t have any of them right now, you can start TODAY regardless your age INVEST and change your future! Investing in the financial market is a grand choice I made.

  14. The future belong to those who believe in the beauty of their dreams. Success is a state of mind. I started investing my cash in other to achieve all my dreams and with the help of expert Mrs Ava Brenda Harry. The difference she makes in my life is second to none it's definitely a life changing kindness. I really appreciate her efforts in my life

  17. Capex issue
    CBS federal system introduced by Britain.
    EB, computer purchase, maintenance of building or rent, etc under treasury bill of bank kept as security in share market.
    Employees paying tax.
    Early one loan paid, variable amount collection from agent, etc calculated to show income generated to calculate average profit this year government can use, so payment needed or bank can get IT return needs checking to use these funds for technical support for village people with no services charged.

    Treasury bill in share market can be paid from these revenue
    Rate of these t-bills to be for fund collection or bill produced to reduce RTI application to be decided as India a Democratic country

  18. Recessions are part of the economic cycle, all you can do is make sure you're prepared and plan accordingly. I graduated into a recession (2009). My 1st job after college was aerial acrobat on cruise ships. Today I'm a VP at a global company, own 3 rental properties, invest in stocks and biz, built my own business, and have my net worth increase by $500k in the last 4 years.

  19. Wonderful I still can't believe I have $15,158 in my bank account from last week trade, and it's all thanks to Thomas Kostas he's the only one I trust to trade binary option for me, have tried a lot of methods and strategies but all failed me until my binary mate introduce me to Him. hey guys any one having issues trading binary iq option for yourself just contact him now for more assistance.

  21. The system is failing as a result of both government and federal policy. In the next days, the banking crisis would have to be epic and gigantic for the FED to decide not to raise interest rates. This won't happen; an increase and a crash are coming. There will be more negative portfolios this 2nd half of 2023 with markets tumbling, soaring inflation, and banks going out of business. My concern is how can the rapid interest-rate hike be of favor to a value investor, or is it better avoiding stocks for a while?Read more

  23. First of all, this whole economic chaos was powered by optimism that the FED is done with hiking interest rates. Now that interest rate crash is the situation, where do we go from here? How would you advise I safely allocate $250k funds at this point?

  25. First of all, this whole economic chaos was powered by optimism that the FED is done with hiking interest rates. Now that interest rate crash is the situation, where do we go from here? How would you advise I safely allocate $250k funds at this point?

  28. Increased losses for portfolios this quarter are predicted by market drops, skyrocketing inflation, a major interest rate hike by the Fed, and rising treasury rates. How can I profit from the volatile market right now? I'm still considering whether to sell my million dollar bond and stock account.

  29. I'M 50 YEARS AND I RETIRED AT 47. I WAS ABLE TO DO THIS BECAUSE I UNDERSTAND FOUR PRINCIPLES OF FINANCIAL PLANNING SUCCESSE THINK LONG TERM WITH GOALS AND INVESTING. SPEND LESS THAN YOU EARN. MAINTAIN LIQUIDITY(AN EMERGENCY SAVINGS) MINIMIZE THE USE OF DEPT

  32. Indications have come from some top investors that stocks were ripe for a pullback after a record-breaking rally driven by expectations the Federal Reserve will pivot to cutting interest rates potentially 2024, right now I have approximately $250k stagnant in my portfolio that needs growth. What is the best way to take advantage of this market.

  34. I'm 50 years old , I'm glad  I made a productive decisions about my finances that changed my life forever, I'm a single parent living in Bn Italy, bought my first house in last month and hoping to retired next year at 51 if things keep going smoothly for me

  36. Great video but please make more of ones to enlighten people. I stumbled upon someone complaining in your comment section about loosing job and seeking for help. Having multiple income sources is very crucial to financial growth.

  37. In these uncertain times, it's more important than ever to have a solid understanding of how to manage your finances, invest wisely and navigate economic downturns. But my primary concern is how to grow my reserve of $240k which has been sitting duck since forever with zero to no gains, sure I'm all in on the long term game, but with my savings are lying waste to inflation and my portfolio losing gains everyday, I need a remedy.

  38. Given reduced inflation signals and as the Federal Reserve has halted rate hikes, what are the best additions for a $120K portfolio to enhance the overall performance of my portfolio this year

  39. Would someone please tell me why interest paid on fiat currency and who collects it, any why should they collect it without collateral? These questions are on my mind and can’t find answers. Thanks!

  40. The FED lowered its inflation objective to less than 2% in 2012. They changed the target to a long-term average of 2% inflation. Because long-term interest rates are set at inflation plus a profit margin, the implication is lower interest rates. I consider the current rising interest rate to be a very serious issue it will cause more investors to withdraw from the market. But then despite the severe bear market, I am aware of certain investors that continue to earn over $365,000. Wish I could accomplish that.

  41. If you are properly prepared and knowledgeable, every crash/collapse/inflation or recession gives an equal market opportunity. I've seen folks amass up to $800k from the market throughout crises and even do it with ease in a terrible economy.

  42. Banks don't lend reserves. They create new money when they lend it. Most households don't have mortgages. When interest rates go up it means government bonds pay more, increasing income of bond holders…which is inflationary. In other words raising interest rates doesn't control inflation unless they go so high the economy crashes because all debtors are at risk of defaulting. Only fiscal measures control inflation reliably. Cut government spending and increase taxes to take purchasing power out of the economy. Interest rates should be zero. Central banks should simply provide banking services to government and government should use fiscal measures to control inflation.

  46. Bruh I just want y’all Biden haters to know the impact you feel is directly from his predecessor Trump and his horrible decisions he made that impacted the future of our economy, which is now… just like how Bush impacted the economy before Obama took office…

  47. "We will always hide the divine truth from them, that we are all one. That he must never know! They must never know that color is an illusion, they must always believe that they are not equal. Drop by drop, drop by drop we will advance our goal. We will take over their lands, resources and wealth to exercise control over them. We will trick them into accepting laws that will steal the little freedom they have. We will set up a money system that will shut them down forever, keeping them and their children in debt."

    J.D. Rockefeller

  49. With around £120k invested in tech/TSLA stocks, any suggestions for additional stocks to diversify across various markets? Looking for a well-rounded portfolio that balances risk aversion with returns meeting yearly inflation concerns.

  50. Inflation depreciates idle money. I'm in a privileged position to be able to save almost 65% of our net household income, as I placed it on safer investments. The key for us was not spending beyond our means. If you invest and have other sources of income outside of dividends then you will be able to live off dividends. Got north of $200K in my portfolio as I bought a lot of dividend stocks before, I'm buying more now, and I will buy more when it drops further

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