The hidden cost of rate hikes
Darren Quinn
When the Reserve Bank of Australia raises interest rates, it’s presented as a necessary, technical adjustment to control inflation. But we must ask a more critical question: who truly bears the cost of this policy, and is it the most effective tool for the job?
The conventional narrative suggests that higher rates are a regrettable but essential medicine to cool an overheating economy. However, a closer look reveals this “medicine” has highly unequal effects.
Contractionary monetary policy is explicitly designed to:
1. Slow economic growth;
2. Raise unemployment;
3. Depress wages;
4. Undermine the financial security of households.
In short, it demands that working people and mortgage holders bear the entire burden of the economic adjustment. This isn’t an unfortunate side effect; it’s the core mechanism of the policy.
The justification often relies on the myth of a “wage-price spiral,” but the data doesn’t support this. Today’s inflation isn’t primarily driven by workers demanding fair pay. It stems from:
1. Supply-side shocks;
2. Global supply chain dynamics;
3. Corporate pricing power.
These are factors that interest rate hikes are fundamentally ill-equipped to solve. From an MMT (modern monetary theory) perspective, raising interest rates isn’t a silver bullet. It’s a blunt instrument that can unnecessarily slow the economy while failing to address the root causes of inflation. The notion of an “independent” central bank obscures what is, at its heart, a political choice with profound distributional consequences.
Choosing to increase unemployment to manage prices is a decision to sacrifice the livelihoods of the many for the stability of the few. It is, in effect, a form of class warfare.
There are more effective and equitable ways to manage our economy. It begins with abandoning the flawed inflation-targeting framework in favour of an inclusive policy approach focused on full employment and broad-based prosperity.
Source: LinkedIn, 27 Sep 2025 Further details: https://darrenquinn.substack.com/higher-interest-rates-constitute-class-warfare
1. The businessman is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to society.
2. The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty. — John Maynard Keynes
