<p>Inflation can be self-sustaining, in the sense that demand can actually increase due to inflation. Since things will only keep getting a lot more expensive, better to make your purchases now than wait for later when things get even more expensive. This increase in demand pushes inflation even higher and that’s how inflation turns to hyperinflation.</p>
<p>In other words, because of inflation, money keeps losing value. So people want to get rid of money in any way they can, e.g. buying things (or other assets like gold). As more money is pouring into the market (effectively money supply is increasing), money loses its value even more (as with anything else, the value goes down when supply goes up). This manifests as higher inflation (because money is worth less, more money is needed to buy the same things from before - which implies a price increase).</p>
<p>This whole process can even continue to the point where the currency collapses and loses all value (hyperinflation).</p>
<p>That’s why the fed has to intervene.</p>

CC BY-SA 4.0
2023-03-18T21:39:54.160Z
2023-03-21T22:02:34.710Z
2023-03-21T22:02:34.710Z
BB King
<p>Inflation, as you might know, can be categorized as demand push or cost pull. Either way, it is a situation arising out of more buying power for a limited supply of goods. If the FED does not try and reign it in by raising interest rates, we might end up in a hyperinflation phase- see Venezuela now, as pointed out by Alex.</p>
<p>This time it is caused by supply side crunches, again as pointed out by Alex. The economy was already slowing down and the FED had been in fact quite reluctant or let's say dovish the whole time giving it enough time to recuperate without raising the rates. But as things stand, an ongoing Russia-Ukraine war, Covid-19 lockdowns in China causing supply chain blockades and fear of Covid have only made inflation worse. Look at the rising gas prices for instance. With limited supply if the FED continues to let people buy all the stuff without a barrier, things might go further south. Increasing rates would cause the people to spend less, although a slowing economy- as the FED likely has no control over factors like war, lockdowns in China and looming Covid. A slow recovery out of recession is better than having the country spiral into hyperinflation by not reigning in the money supply.</p>
<p>Hope it helps.</p>

CC BY-SA 4.0
2022-06-21T04:07:45.520Z
2022-06-21T04:07:45.520Z
Tomahawk
<p>The FED has two goals: Price stability and maximum sustainable employement.<br />
This means that the FED has to intervene when inflation gets out of control. Especially after the massive increase in money supply in the last year.<br />
Inflation sometimes can cause a <a href="https://www.investopedia.com/terms/w/wage-price-spiral.asp" rel="nofollow noreferrer">Wage-Price spiral</a> which would sustain high inflation for more time than expected and the FED wants to avoid this situation which could lead to hyperinflation.</p>

CC BY-SA 4.0
2022-06-21T16:56:32.623Z
2022-06-21T16:56:32.623Z
Emanuele
<p>If inflation continues to grow at the pace at which it’s growing won’t the inflation itself put the economy in slowdown. Why does FED have to proactively intervene to slowdown?</p>

CC BY-SA 4.0
2022-06-19T19:07:08.403Z
That is the essence of monetary policy. Although current inflation is largely due to supply shocks, money supply increased a lot in recent years and especially since COVID. You can look at Turkey right now, Venezuela, Weimar Republic and the likes to see what happens if central banks do not stop increasing money supply to fight inflation.
Alex
<federal-reserve><fed-funds-rate>
Inflation vs fed hike
Sohail Khan
# Inflation vs fed hike

(Asked by: username_0 on 2022-06-19)

If inflation continues to grow at the pace at which it’s growing won’t the inflation itself put the economy in slowdown. Why does FED have to proactively intervene to slowdown?

**Tags:** federal-reserve, fed-funds-rate
> **Comments:**
> **username_1**: That is the essence of monetary policy. Although current inflation is largely due to supply shocks, money supply increased a lot in recent years and especially since COVID. You can look at Turkey right now, Venezuela, Weimar Republic and the likes to see what happens if central banks do not stop increasing money supply to fight inflation.  

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## 3 answers

### Answer by username_2 on 2023-03-18. Score: 3

Inflation can be self-sustaining, in the sense that demand can actually increase due to inflation. Since things will only keep getting a lot more expensive, better to make your purchases now than wait for later when things get even more expensive. This increase in demand pushes inflation even higher and that’s how inflation turns to hyperinflation.

In other words, because of inflation, money keeps losing value. So people want to get rid of money in any way they can, e.g. buying things (or other assets like gold). As more money is pouring into the market (effectively money supply is increasing), money loses its value even more (as with anything else, the value goes down when supply goes up). This manifests as higher inflation (because money is worth less, more money is needed to buy the same things from before - which implies a price increase).

This whole process can even continue to the point where the currency collapses and loses all value (hyperinflation).

That’s why the fed has to intervene.


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### Answer by username_3 on 2022-06-21. Score: 0

Inflation, as you might know, can be categorized as demand push or cost pull. Either way, it is a situation arising out of more buying power for a limited supply of goods. If the FED does not try and reign it in by raising interest rates, we might end up in a hyperinflation phase- see Venezuela now, as pointed out by Alex.

This time it is caused by supply side crunches, again as pointed out by Alex. The economy was already slowing down and the FED had been in fact quite reluctant or let's say dovish the whole time giving it enough time to recuperate without raising the rates. But as things stand, an ongoing Russia-Ukraine war, Covid-19 lockdowns in China causing supply chain blockades and fear of Covid have only made inflation worse. Look at the rising gas prices for instance. With limited supply if the FED continues to let people buy all the stuff without a barrier, things might go further south. Increasing rates would cause the people to spend less, although a slowing economy- as the FED likely has no control over factors like war, lockdowns in China and looming Covid. A slow recovery out of recession is better than having the country spiral into hyperinflation by not reigning in the money supply.

Hope it helps.


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### Answer by username_4 on 2022-06-21. Score: 0

The FED has two goals: Price stability and maximum sustainable employement.  
This means that the FED has to intervene when inflation gets out of control. Especially after the massive increase in money supply in the last year.  
Inflation sometimes can cause a [Wage-Price spiral](https://www.investopedia.com/terms/w/wage-price-spiral.asp) which would sustain high inflation for more time than expected and the FED wants to avoid this situation which could lead to hyperinflation.


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