As the spending behavior of businesses and households will be greatly influenced by real interest rates, if real rates can be lowered, both private consumption and business investment will be stimulated and the level of economic activity will heighten. As a result, supply and demand balances will tighten in goods and services markets, as well as the labor market, and prices will rise accordingly.
It is considered that nominal interest rates, notably long-term interest rates, will be determined according to the outlook for economic activity and prices. Therefore, intrinsically, if the real economy and prices improve and inflation expectations increase, nominal interest rates will rise. Were nominal interest rates to rise in parallel with a rise in inflation expectations, real interest rates would not change.