I’ve been thinking a lot about this, and now I am ready to write it. In my view, the belief that higher interest rates reduce inflation no longer holds true in today’s economy. Instead, elevated rates now amplify inequality, suppress productive investment, and exacerbate inflationary pressures. In a system where capital is more concentrated than ever, rate hikes generate massive, risk-free payouts to the wealthiest—while increasing the government’s debt burden and squeezing the very groups that drive real economic growth.
Below are three key points supporting this view, followed by an urgent note on the deflationary force that may define the next decade: artificial intelligence.
1. Higher Rates Are No Longer Disinflationary—They’re Stimulative for the Wealthy
In an era of extreme wealth concentration, raising interest rates no longer restrains inflation—it stimulates it. Each hike increases interest payments on government debt, funneling billions in risk-free returns to institutions, asset managers, and ultra-wealthy bondholders. This isn’t tightening—it’s yield printing for those least in need.
Meanwhile, the broader population faces higher borrowing costs, stagnating wages, and asset inflation. Wealthy holders use their gains to acquire more property, financial assets, and private businesses—driving prices even higher and compounding inequality. Rather than cooling the economy, this dynamic entrenches inflation and weakens long-term stability.
2. Lower Rates Are Now Deflationary—They Push Capital into Productivity and Innovation
Low rates force capital out of safety and into risk—fueling startups, infrastructure, R&D, and competitive enterprise. These forces compress margins, increase efficiency, and drive down prices. This is how capitalism is meant to work: through innovation and competition—not passive accumulation.
Lower rates also reduce interest costs on national debt, curbing the scale of unproductive payouts to concentrated capital. The more capital that flows into building real-world solutions, the more downward pressure we place on prices across sectors like healthcare, energy, housing, and technology.
If we want deflation, we need more builders, not more bondholders.
3. Credit Access No Longer Moves with Rates
Consumer credit markets have largely decoupled from Fed policy. Credit card rates remain above 20% regardless of rate cuts. Auto loans, BNPL, and payday lending operate with minimal connection to Fed Funds. The marginal borrower still borrows—just with more pain.
Higher rates don’t reduce borrowing. They only widen inequality, disproportionately affecting the middle and lower classes who rely on credit to maintain stability.
4. The Coming Deflationary Boom: AI as a Rare Economic Multiplier
Throughout history, there have been only a few inventions that both increased productivity and delivered deflationary benefits at scale:
- The combustion engine boosted mobility and output across nearly every industry.
- The Internet democratized access to information, dramatically lowering costs in commerce and communication.
Now, AI stands poised to do the same—or more.
Artificial intelligence is not just a technological leap. It’s a productivity multiplier for the entire economy. Healthcare, finance, logistics, education—no sector is untouched. And unlike previous innovations, AI’s benefits are immediate and compounding. This technology doesn’t just streamline—it transforms.
Here’s what makes this moment historic: AI offers both accelerating output and falling costs. It is rare for an economy to encounter a force that simultaneously drives GDP growth and deflation. But that’s precisely what AI enables—an economic “double positive” not seen since the industrial revolutions of the early 20th century.
We may be on the verge of the fastest economic expansion in a century. The obstacle? A rate policy stuck in the past.
My Conclusion: Cut Rates, Embrace the Future
The longstanding model linking high rates with price stability is outdated. Elevated rates now enrich the wealthiest, burden the economy’s builders, and block innovation that could lower prices for all.
If the Fed wants to fight inflation, it must embrace the forces of productivity. Cut rates. Let capital flow into risk. Let builders build. Let innovation drive down costs across the board.