this post was submitted on 15 Aug 2023
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So interest rates have also come down?
Interest rates increased at the last cycle. Opinion is split if they will increase again in September.
It is likely they will.
Debt becomes more attractive when inflation is high. If, hypothetically, $1 yesterday is worth 80¢ today (inflation), then you just saved having to pay back 20¢ on every dollar of the principal. That is one hell of a steal! As such, rates rise to compensate. If higher interest rates now require you to pay 20¢ more for every dollar then that debt is not so attractive again. This keeps the supply and demand in equilibrium.
But since higher rates are specifically what is driving inflation (we are in the target range if you exclude mortgage interest costs), the higher the rates, the higher inflation goes. With that, the equilibrium is struggling to be found.
And this is what we call an inflationary spiral.
Not yet, no. I've heard from people who seem like they should know about such things that it should be expected soon.