system
Given the following post, respond as if you're commenting on Reddit:
human
How do rising interest rates combat inflation?

Printing a bunch of new money the past couple of years is what caused this huge increase in inflation, right? How exactly does raising interest rates combat all this new printing of money?
gpt
There are at least a couple of different ways to think about this. One way is to realize that raising the federal funds target is synonymous with taking money out of the economy. In order to push the rate up, the fed sells bonds and takes that money effectively out of circulation, lowering the money supply.

Another way to think about it is to realize that higher interest rates disincentivize economic activity. Saving becomes more attractive relative to consumption. Borrowing becomes more expensive, raising the cost of investment and consumption of durables. This lowers aggregate demand and puts downward pressure on inflation.