How do nominal interest rate hikes typically affect inflation and real interest rates in an economy?

When nominal interest rates go up, it means that the cost of borrowing money increases. This usually leads to less spending by consumers and businesses because loans for things like houses, cars, or investments become more expensive. As people spend less, the overall demand for goods and services in the economy decreases, which can help lower inflation, or the rate at which prices rise. At the same time, real interest rates, which adjust for inflation, may also rise because the higher nominal rates can outpace any inflation that still exists. For example, if the nominal interest rate is 5% and inflation is 2%, the real interest rate would be 3%, making saving more attractive and borrowing less appealing.