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Technically true, but outside of crises interest and inflation are heavily correlated. Have a look at e.g. the historical federal funds rate: https://tradingeco
by bildung 5y ago
Technically true, but outside of crises interest and inflation are heavily correlated. Have a look at e.g. the historical federal funds rate: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate and historical inflation: https://tradingeconomics.com/united-states/inflation-cpi https://tradingeconomics.com/united-states/inflation-cpi (you have to set both to "max" manually).
In other words: You won't get high interest without high inflation.
- runeks 5y agoI don't think you’re including enough data in your analysis. I agree that there’s been a correlation between the inflation rate and the rate of interest for the past century, but before that there was no such correlation. It seems to be a feature of our current monetary system. Also, the correlation between a rising rate of interest and rising prices is much better than high interest/high inflation [1]. For example, from 1990 to 2000 we had relatively little inflation but the rate of interest was 5-8%. [1] https://fred.stlouisfed.org/graph/?g=DCxk https://fred.stlouisfed.org/graph/?g=DCxk
- bildung 5y agoWell before that period the federal funds rate didn't exist, so one can't compare it to the wild swings from inflation to deflation in the 19th century. (There are a bunch of studies for stock and property returns, or for treasuries like you linked, but that's something quite different).
- runeks 5y agoBill of Exchange discounting goes back many centuries. It should be possible to compare this historic discount rate to inflation. I think it would be interesting to see the result, but I don’t have the data unfortunately.