If the credit crunch gets worse and inflation rises would interest rate alterations to control inflation be viable? Surely an interest rate rise in the current market would be as damaging to businesses and home owners as inflation therefore would it be advisable to look for a new method of controlling inflation to close the inflationary gap that is likely to appear in the near future without these side affects? If you agree what methods should be used?
No interest raises are not viable. We got off inflation highway a couple of exits ago and we are on deflation street now. Credit defaults greater than monetary stimulus results in net money supply shrinking. Rates will be going lower, timing uncertain.