What is a primary factor that affects the movement of interest rates?

Inflation rates are a primary factor affecting the movement of interest rates because they reflect the purchasing power of money over time. Central banks, such as the Federal Reserve, often adjust interest rates in response to changes in inflation in order to maintain price stability and economic growth. When inflation is rising, central banks may increase interest rates to cool off the economy and curb spending, thereby reducing inflationary pressures. Conversely, if inflation is low or deflationary pressures exist, central banks may lower interest rates to encourage borrowing and spending, stimulating economic activity.

Monitoring inflation trends helps investors and policymakers gauge future interest rate movements. It also directly influences bond yields and the cost of borrowing for consumers and businesses, making it a critical determinant in economic and financial planning. The other options, while they can have effects on the economy and markets, do not have the same direct relationship with interest rate policy as inflation does.