Do Increases In The Money Supply Drive Up Interest Rates?

Similar to last week’s post, we’ll be asking if increases in the money supply lead to higher interest rates?

Let’s look at the money supply and 10-year interest rates in the five largest economies. First up: the US.

The Eurozone:

China:

Japan:

The UK:

The verdict: increases in the money supply do not necessarily lead to higher interest rates. In fact, the above data from the five largest economies during a period of unprecedented expansion in the monetary base shows zero evidence that increases in the money supply drives rates higher. Apologies to the self-described bond vigilantes and Tea Partiers for the cognitive dissonance.

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