Why Consumption depends on Long term rates ?? Why not short term rates
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Suppose that a central bank raises interest rates because it is concerned about the strength of underlying inflationary pressures. Long-term interest rates are influenced by the path of expected short-term interest rates, so the outcome of the rate hike will depend on market expectations. Suppose that bond market participants think that short-term rates are already too high, that the monetary authorities are risking a recession, and that the central bank will likely undershoot its inflation target. This fall in inflation expectations could cause long-term interest rates to fall. That would make long-term borrowing cheaper for companies and households, which could in turn stimulate economic activity rather than cause it to contract.
Buddy u wrote this very fabulous
But when they hike short term rates
In short term consumption should also go down
Am I correct??
Why Consumption depends on long term rates??? I’m Little confusede
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