“In the free market, interest rates perform the same functions as all other prices: to provide information to market participants; to serve as an incentive mechanism for buyers and sellers; and to bring market supply and demand into balance. Market prices convey information about what goods consumers want and what it would cost for producers to bring those goods to the market. Market prices serve as an incentive for producers to supply more of a good when the price goes up and to supply less when the price goes down; similarly, a lower or higher price inﬂuences consumers to buy more or less of a good. And ﬁnally, the movement of a market price, by stimulating more or less demand and supply, tends to bring the two sides of the market into balance.” Read more.
“Market Interest Rates Need to Tell the Truth, or Why Federal Reserve Policy Tells Lies”
In Defense of Capitalism & Human Progress, December 16, 2009.
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