How does raising interest rates control inflation?

When central banks raise interest rates, the impact is felt far and wide. Mortgages become more expensive, house prices might fall and unemployment can rise. So why do central banks do it? This film from The Economist tells you why.

How does raising interest rates control inflation? - The Economist

When central banks raise interest rates, the impact is felt far and wide. Mortgages become more expensive, house prices might fall and unemployment can rise. So why do central banks do it? This film tells you why.

The Fed Pushing For CBDC, "Can't Wrap Their Head Around Not Having It"

 From the Uneducated Economist, an interesting view on the Fed's thinking about a CBDC plus a great take on assets, investments, banking, money and the economy generally.

 

Lessons from the Hayes conviction

From The Financial Express –

“Last week’s conviction of Tom Hayes, in the infamous London Interbank Offered Rate (LIBOR) rigging scandal, should be an eye-opener for Indian regulatory authorities. The scandal, which peaked around 2008, involved some major banks—including JP Morgan, Deutsche Bank and Barclays Bank—artificially understating the interest rate.

While it may no longer be shocking to hear Hayes pleading that such interest rate manipulations were common knowledge, both to his seniors and the banking sector in general, it may be heartening to note that RBI has taken proactive steps to counter similar manipulations of MIBOR—Mumbai Interbank Offered Rate—which was originally set up on the lines of LIBOR. Although it is not a global benchmark like LIBOR, it is, as the NSE defines it, the “yardstick for the money market”, serving as a reference in the interest rate swap market in India and a benchmark rate for majority of deals struck for interest rate swaps, forward rate agreements, floating rate debentures and term deposits.”

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UBS Gave Out ‘Instruction Manual on Fixing Libor’ - Hayes

From Bloomberg –

“Thomas Hayes, a former trader on trial over charges he manipulated benchmark rates, told prosecutors in 2013 that UBS Group AG distributed “an instruction manual on fixing Libor” to suit their trading positions.

The Swiss bank’s e-mailed “Guide to Publishing Libor Rates,” which was shown to jurors by prosecutors in London Thursday, included an instruction for traders to adjust their submissions depending on their “delta/fixing position.”

“If 3m Libor” exposure “is 4,125 this means we are receiving” and “therefore we want to increase the fixing by 25 basis points,” according to the internal UBS guide. “If the number is negative then vice-versa.”

Hayes, the first person to stand trial for allegedly manipulating the London interbank offered rate, told prosecutors the document was evidence that Libor-rigging was standard operating procedure during his time at UBS.”

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Broking market like "Wild West", London Libor trial told

From Reuters –

“Tom Hayes, a former trader on trial in London for alleged interest rate rigging, described the broking market he worked in as the "Wild West" with no rules and where relationships relied on lavish entertainment, a court heard on Tuesday.

The court was told that this was also a high-pressure environment, which took its toll on Hayes, prompting him to threaten brokers and pick fights with colleagues in his efforts to move interest rates to aid his trading.

The criminal trial heard how Hayes, a former UBS and Citigroup yen derivatives trader, threatened to drop brokers if he felt they failed to help to persuade traders at other banks to move benchmark interest rates in directions to suit his trading book.

Hayes is the first person to stand trial on charges of alleged manipulation of the London interbank offered rate or Libor, used to price an estimated $450 trillion of financial contracts worldwide. British prosecutors allege Hayes was the ringmaster in a conspiracy with 25 staff from at least 10 banks and brokerages to rig the interest rate benchmark.”

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