Business Interest Channel

Published on June 20, 2023 by Premium

Business debt is a transmission mechanism of monetary policy, but its effectiveness can be blunted by inflation. In theory, Fed rate hikes can dampen economic activity by raising business interest expenses and reducing the availability of financing. But inflation works against this channel by increasing business revenues and the value of business assets, which can be used as collateral to raise financing. The Fed's hikes appear significant, but are muted when contrasted with the surge […]

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