While recent posts have myth-busted the narratives that money printing causes inflation and money printing drives up rates, even a quick glance at the same data shows that there is a stronger relationship between inflation and interest rates. The conventional view is that long-term rates move in response to inflation, although it is worth noting that long-term rates are less volatile than the inflation rates that drive them. Thus, the R² (or goodness of fit) is not that high, but there is a visible correlation nonetheless.
We’ll start with the world’s largest economy, the US:
And the Euro Area:
And finally, the UK:
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