Fed increases target rate to 3.75-4.00%

Every mainstream economist agrees that rising interest rates increases unemployment.

Well you need human beings to go and make stuff like food and gas. That stuff is also already made as efficiently as possible. So supply is definitely, also, going to be reduced.

Every time a loan is agreed, the value of the ${NATIONAL_CURRENCY} is diluted by a tiny amount. And that tiny dilution is amplified through the economy and has a proportionally larger effect on the price of end-user items which inflate to compensate.

Increasing interest rates is not a lever that directly affects things measured by the CPI, but the idea is that the effects will ripple through the economy and reduce the delta-v of their prices at the end of a very complicated series of gears and pulleys.

It's a bit like trying to refloat a grounded ship by subtly nudging the Moon's orbit to modify the tides.

By this logic, why doesn't Congress illegalize travel? Is that going to reduce the cost of travel? Will that reduce CPI, which measures prices, not demand?

> Or they won't buy another TV,

What if we illegalized buying TVs? Would that make TV prices fall? You think that is going to reduce CPI?

I'm not saying your explanation here is stupid. It is the first one in a while that seems to at least appeal to common sense. I am just trying to show that CPI measures prices, it does not measure demand or supply alone for goods.

> With less people competing for precious gas, its prices drop.

Gas prices rise and fall all the time. Lots of factors go into its price. You could illegalize gas, would this cause the price of gas to rise or fall?

But probably more importantly the increased cost of borrowing hits businesses which are living on the edge and have been rolling over short term loans at low interest rates. When that debt service triples then those unprofitable businesses will start facing negative cash flow losses and can be pushed into insolvency.

For just one example, look at all the commercial real estate vacancies in downtown SF and Portland. Behind a lot of that will be very cheap financing which will go under when interest rates rise (and it is all reasonably short-term financing because it had to be in order to get the lowest interest rates and keep the businesses barely treading water -- so think of this as ARM mortgages for business).

So you have reduced demand for anything funded by loans, along with businesses at the margins going under because their cost of borrowing increases. You get layoffs from the businesses going under which will remove demand for goods. The reduced demands for goods then filters through the system producing more layoffs and more reduced demands for goods across every sector and the economy contracts into a recession.

All the Fed does is raise the cost of borrowing money which causes enough businesses on the edge of failure to fail that it pushes the economy into a recession--amplified by all the positive feedback loops in the economy.

Honestly don't know why this is such a mystery to everyone or why the question needs to be a "meme", it is pretty straightforwards. The only tricky part might be understanding why failures of businesses on the margins could lead to an economic collapse, but you'd think that with the audience of engineering-oriented people here that we'd collectively understand positive feedback loops amplifying small changes into big ones.

Oh there's also purely subjective psychological positive feedback loops as well. Layoffs at FAANGs right now (or whatever they're called these days) is more due to forward expectations and those businesses getting a bit more runway for the recession. But by doing that they're helping to create the very recession that they're getting prepared for. Similarly in the middle of a recession businesses cut jobs and curb spending because they're in a recession, making the recession worse.