How to Manipulate People with Interest Rates

Mises Wire

Most experts agree that through the manipulation of short-term interest rates, the central bank by means of expectations regarding future interest rate policy can also dictate the direction of long-term interest rates. In this way of thinking expectations regarding future, short-term interest rates are instrumental in setting the long-term rates. (Note the long-term rates are an average of short-term rates in this way of thinking.)

Given the supposedly almost absolute control over interest rates, the central bank by correct manipulations of short-term interest rates could navigate the economy along the growth path of economic prosperity, so it is held. (In fact, this is the mandate given to central banks.)

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