Rate-hike by the Fed may lower demand and increase deflation...

Low inflation means there is a deflationary bias in the economy which points to the lack of aggregate-demand and interest-hike may even lower demand more, and the economy could fall in a deflationary-trap. Higher and higher interest rate might lower and lower demand, more and more and prices will fall. But, if the Fed continues with its stance it would increase demand by lowering prices and increasing wages as we approach full-employment... Deflation is a problem when we fall in a downward-spiral and prices decrease at a fast speed and decreases supply. Moreover, we also know that deflation also increases demand by lowering prices which is likely to exceed supply and may increase prices in the future. Low and stable inflation as it is now and lower interest-rate when we are close to full-employment and higher wages will reinforce demand and growth... In this situation if the Fed wants to increase demand it can choose to increase nominal and real-wages by increasing the money-supply when inflation is too low... The level of interest-rate or real interest rate is determined by the inter-play of demand and supply for money... Lower interest rate may be a signal of low demand and also for high supply and both show that demand is low relative to supply; therefore it must increase by increasing money and wages... which seems to be a little dovish as compared to the Fed’s current stand, but it might be good for the economy in terms of demand and future inflation and growth...