The Recent Cyclical Movements of Interest Rates in Historical Perspective

In a major and scholarly article, the author studies the past behavior of interest rates in attempting to shed light on recent developments and future prospects. He concludes that the long business cycle, 1961-70, and the high rate of inflation which developed midway in the expansion, affected the cyclical pattern of interest rates. The initial rise in rates in 1965 probably reflected an expansion of business investment, but most of the rise thereafter reflected a rapid and nearly complete adjustment of anticipations to the inflation. Whether the large amplitude and lagged turning points in interest rates in the recent cycle will be repeated in future cycles depends critically on the strength of inflation in the 1970's.