👨‍🎓 How central banks control inflation with interest rates

**13/52** Macro Mornings Education

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Dear all,

Now that we’ve explored the challenges of inflation, deflation, and stagflation, let’s dive into one of the most important tools that central banks use to manage these issues - interest rates.

Central banks, like the Federal Reserve in the U.S. or the European Central Bank (ECB) in Europe, play a critical role in controlling inflation and maintaining economic stability. One of their primary tools is setting interest rates, which influence borrowing costs, consumer spending, and overall economic activity.

Here’s how it works:

1.     Raising Interest Rates to Combat Inflation: When inflation is rising too quickly, central banks may raise interest rates to cool down the economy. Higher interest rates make borrowing more expensive, which reduces consumer spe…