The central bank can try to manipulate the interest rate to whatever level it desires. However, it cannot exercise control over the underlying interest rates as dictated by people’s time preferences.
The Fed’s monetary policy, except for very brief periods in 1929 and 1936–1937, was consistently and unremittingly inflationist in the 1920s and 1930s.
What matters is not price rises as such, but the increase in the money supply that sets in motion the exchange of nothing for something or "the counterfeit effect." Business cycles and recessions follow.
Mises declared in 1951: “No boom is possible without credit expansion... the boom which causes the following depression could not occur if the banks did not expand credit."
Ignoring time preference is the fundamental error behind monetary planning. It is why in a successful economy, monetary intervention by the state is kept to a bare minimum, or preferably banished altogether.
Deflation is not a matter of animal spirits or consumer expectations. It is the result of earlier creation of money "out of thin air" by central banks and commerical banks. Deflation is the natural result.
