Dear friends, can you enlighten me? RE: increase in Prime Rate.

[A HERETIC I AM]

3. Spooky has it right, and if I may expand a bit....

Cheap money means more borrowing and more spending. That's fine if there are plenty of goods and services available, but right now that's not the case.

Have you noticed how empty car dealership lots are? Your average GM, Ford or Chrysler dealer normally would have dozens of new cars and trucks on their lots, several of each model in different colors and trim levels, etc. Some dealers lots are pretty much empty.

These days, the only full lots are at used car stores, like CarMax, etc. because the used car market does not depend on computer chips from Taiwan (and other items in short supply) to install in new vehicles, though inventory is tightening because people aren't trading in their cars because they can't get new ones!

So in that one sleeve of the economy alone, you can clearly see inflation in action. People have money to spend, but there are not enough goods to go around.

So things become more expensive. The laws of supply and demand in action.

By raising the Prime Rate, the Federal Reserve Board hopes to trim back demand so prices will fall. That's all there is to it.