Why Did the Fed Raise Short-Term Rates?

In April 1997, the Federal Reserve had just raised short-term rates in response to fears of inflation. Some people expected inflation because the GDP was growing, and Keynesian economic theory says that GDP growth causes inflation. The opposing school of thought, Classical economic theory, says that printing money causes inflation. Since in 1997 the GDP was growing but the government wasn’t printing money, it was a good time to take a look at the two theories.

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