Does the Fed control inflation or create the conditions for it to rise?
When interest rates are low, people look for yield. They go into the markets looking for stable options, like real businesses.
More investment leads to more production, goods, and services, and therefore greater supply.
When rates are high, why take the risks of running a business when you can buy government bonds and earn a return without all the operational headaches?
As a result, money leaves the real economy, business loans become more expensive, some companies downsize or shut down, and supply drops.
Lower supply with constant demand = higher prices.
This leads to a paradox: rates are raised “to fight inflation,” yet a few months later, those same actions can create the conditions for prices to rise again.