Myth #4: Every Time the Fed Tightens the Money Supply, Interest Rates Rise (Or Fall)

The financial press struggles to interpret weekly money supply figures, often providing conflicting views on interest rates. This confusion arises from multiple causal factors impacting interest rates in different directions. Initially, expanding the money supply lowers interest rates, while restricting credit raises them. However, as chronic inflation sets in, the public becomes aware of its effects on creditors and debtors. Inflation expectations begin to influence interest rates, leading to uncertainty about the impact of Fed actions. The strength of these causal chains is uncertain, making economic forecasts inherently unreliable.