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why does inflation lead to higher interest rates?
or is it vice versa? what if the fed forces the interest rates of bonds down by yield control?
- OiyLv 71 month agoFavorite Answer
If the aggregate demand has shifted to the right because of G spending or exports for example, the real interest rate will grow up the same as the real GDP. So it causes inflation naturally. If it is too hot, the FED might need to keep it down. It will raise the fund rate by purchasing the securities from the banking system.