Thursday, May 06, 2004

Bank ups interest rates to 4.25%

I'm curious as to the knock-on effects that everything has on each other. Rates low => more borrowing => more spending => more demand => more production => more workforce => more jobs. Simple in terms of cause and effect (as I understand it), but there are also time delays in all that - setting the rates low doesn't cause an immediate rise in jobs, and the low interest rates of the last year are only just being seen as economic "recovery" now.

So if interest rates rise => people pay back more + borrow less => spend less => demand declines a bit =>=>=> the workers taken on previously suddenly aren't needed as much?

Does this mean that once the house market starts cooling off, we should be expecting job losses a year down the road? And if businesses aren't predicting rise and fall correctly, there could be a whole load more jobs being created for a market based on old data, but that aren't needed now or in the near future?

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