Thanks.

Do you know of any reasons why short term rates would not rise due to inflation during less than hyperinflationary episodes? I guess my prior question was pretty trivial, since of course hyperinflation would make all rates for all maturities rise. I was thinking more of “normal” situations.

If we don’t have hyperinflation, and for the last 100 years there has been no hyperinflation, then does that mean that falling short term interest rates in the presence of inflation has always been due to the so-called “liquidity effect”?

Maybe that question is also trivial.

“No, I would say LOWER short term rates are almost alway monetary easing. But rates are nlow now, and we don’t have easy money.”

When/how are lower short term rates not monetary easing?

“Long rates usually rise with monetary easing, but not always.”

When/how do long term rates not rise with monetary easing?

“So if I have this right, the statement “low interest rates are associated with loose money” is correct, as long as the “interest rates” considered are short term rates as opposed to long term rates? Because loose money always increases long term rates?”

No, I would say LOWER short term rates are almost alway monetary easing. But rates are nlow now, and we don’t have easy money.

Long rates usually rise with monetary easing, but not always.

“Geoff, They’d probably distinguish between short and long term interest rates. Low short rates now tend to raise longer term rates. At least that’s how I’d put it.”

Thanks for the clarification.

So if I have this right, the statement “low interest rates are associated with loose money” is correct, as long as the “interest rates” considered are short term rates as opposed to long term rates? Because loose money always increases long term rates?

If the connection between loose money and interest rates is that loose money raises long term rates, then what do short term rates have to do with anything? Why do they need to be low in order for long term rates to be high, when the mechanism is money loosening?

Finally (and I appreciate your time in addressing my questions), shouldn’t Fed loosening bring about both higher long term rates and higher short term rates? The way you put it: “low short term rates tend to raise longer term rates”, seems to suggest, to me at least, that loose money tends to decrease short term rates and increase long term rates.

I guess what I am asking is this: When does loose money decrease short term rates and increase long term rates, and when does loose money increase short term rates and increase long term rates? Is there a middle ground between harsh deflation and harsh inflation that can do this? Like, inflation does not linearly increase both short and long term rates when inflation is less than hyperinflation and greater than zero inflation? If so, am I wrong to say that low short term interest rates are associated with loose (but less than hyperinflation) money?