When you issue too much debt and don't have the income to pay it back (you're running a deficit) you either pay the borrowers back less money than they are due (default) or you pay them back the same amount of money but that money is worth less (you 'inflate the debt away').
I know it's edgy to be contrarian, and arguments for restarting the VC/bankster party are going to play real well with the VC/bankster crowd and their beneficiaries (eg Surveillance Valley). But it's just utterly disingenuous to ignore all of the monetary inflation through the 00's and 10's (both lending based and the deficit from the fraudulent Iraq war), and then point to the straw breaking the camel's back (Covid supply/demand shocks plus stimulus) as the cause.
Main Street has certainly seen plenty of financial devastation on the way down as rates marched to zero. Now we're supposed to believe that damage is just permanent, and raising rates won't contain or even reverse the trends? I don't buy it. How about we just leave rates at the moderate [0] level that they are currently at for a decade+, so all that medium term debt can come due, and then see the results?
Right now the markets are still betting that the current existence of interest rates is just a hiccup, and on an eventual return to the ZIRP party. When housing prices have an actual correction and the everything bubble starts deleveraging, then we can start to talk about how much is enough.
[0] describing 5% interest as being "high" is basically broadcasting your limited perspective. Tell me you're still in your IPA phase without telling me you're in your IPA phase.
Now, when people make long term bets, like buying a house on investing in a business, and the expected inflation rate changes significantly, instead of their economic behavior being the key part of the success of the loan for both sides, it's the change in rates. We've seen banks in trouble not because 7% is too much, but because the borrowing decisions they made, expecting 2% inflation, proved to be major losers. Similar things happen in the real estate market: Ordinary borrowers are basically paying double, month-to-month, on the same house bought today than with a mortgage bought 2 years ago. So anyone that built new housing, doing the math to people buying the house for X price, is either seeing less demand, as only people that don't need a loan can afford it, or just a lower sale price, as the same salary can now pay less for a house. Either way, the builder loses on the bet, and houses either don't get built, or become less profitable.
So really, there's devastation either way when inflation or NGDP predictions are far off. And that's how the fed fails: Just not meeting targets in either direction.
But no, interest rates are not value neutral. That sounds like an invocation of efficient market fallacy. For one, interest rates form a lower bound on what percentage of yield from a business is considered successful.