Historically, growth rate is not always equal to long-term interest rate, but there does seem to be some relationship between the two. Is it that rates influence growth, growth influences rates, or something else entirely? In a nutshell, how are long-term rates and economic growth related, and why?
$\begingroup$
$\endgroup$
1
-
$\begingroup$ I shall change the "correlated" in the title, if I was you. Anything could be correlated with anything. The question for why is always "Why not". Now, if you're interested in causation, that's a completely different matter. $\endgroup$– FooBarCommented Oct 21, 2015 at 4:46
Add a comment
|
1 Answer
$\begingroup$
$\endgroup$
2
Very simply, economic growth is correlated with long term interest rates in the sense that interest rates are set according to the growth of the overall economy and GDP. If economic growth is weak, interest rates are set very low as a means of economic stimulus. If economic growth is too strong due to demand and the economy is overheating, interest rates are slashed.
The Federal Reserve alone determines interest rates, as well as the federal funds rate and the discount rate, through the Federal Open Market Commitee. Visit Federal Reserve System
