My Friday morning thoughts.

When the economy is growing quickly, consumers generally have more money to spend. If demand for goods and services is stronger than the available supply, businesses can raise prices because people are willing to pay more. That’s inflation.

To cool things down, the Federal Reserve raises interest rates. Higher rates make borrowing more expensive, not only for consumers buying homes, cars, or using credit cards, but also for businesses looking to expand, invest in research and development, or hire more employees.

As borrowing slows, spending begins to slow as well. Businesses become more cautious, hiring may soften, and consumers often delay major purchases. Retailers may eventually lower prices or offer more discounts to attract buyers, helping reduce inflationary pressure.

There’s a balancing act.

If interest rates remain too high for too long, the economy can slow more than intended. Consumer demand weakens, business investment declines, and the risk of a recession increases. “Demand Disctruction”

An even greater concern is deflation, a period when prices begin falling across the economy. While lower prices may sound appealing, persistent deflation can squeeze business profits, lead to layoffs, reduce investment, and create a cycle of even weaker demand.

The Fed is talking raising rates but not all Fed members are on board. Raising rates just accelerates a potential recession. It makes everything more expensive and add to inflation not lower it.

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