What effect does an increase in the interest rate have on inflation?

I know that if the inflation rate increases that the interest rate will also increase, because lenders will realize that they have to charge a higher interest rate in order to accommodate for inflation.





However, when a central bank implements policy that changes the interest rate, does this have an impact on inflation? If so, how?|||When the Federal Reserve wants to increase the interest rate, the Fed sells bonds.





When you sell something, it means you're giving someone a good and they're giving you money. The Fed is taking money and giving investors bonds. In other words, the Fed is decreasing the money supply, and decreasing the money supply lowers inflation.





Edit: If you want to be wrong, listen to the guy below me who clearly doesn't understand economics. He's wrong because when the Fed sells bonds on the market, the money doesn't go back into the money supply (until the Fed buys bonds again).|||It is unfortunately not so simple. When interest rates were very low investment in the US was lower and the dollar became weaker. This led to a RISE in oil prices and we actually saw inflation getting worse. Also, this coupled with a stagnating economy actually led to low interest rates couple with higher prices and lower growth or low interest rates and stagflation. But logically, if interest rates are high we should see a stronger dollar and more imports and fewer exports and prices being kept lower because they become cheaper to the US residents. However, growth may suffer even though we don't have inflation.|||But Periphericks, then the Fed lends the money out at a higher prime rate. That puts the money right back into the money supply.