Purchase Solution

the Fed and long-term interest rates

Not what you're looking for?

Ask Custom Question

In late June the Fed lowered its federal funds rate target from 1.25% to 1%. However between mid June and early August the yield on longer term 10 year Treasury notes rose from 3.1% to over 4.3%. This shows that Federal Reserve activity is irrelevant to the behavior of long term interest rates"

Agree or Disagree with the underlined portion of the above quote and explain your reasoning clearly. (If you agree, explain why Fed activity has no influence on long term rates...if you disagree, explain why longer term yields actually increased following the decline in the federal funds rate and what the increased difference between long term and short term rates signifies about investor expectations.)

Purchase this Solution
Solution Summary

First, we must understand are you talking about existing bonds from before the Fed made the change. If so, that ........

Solution Preview

First, we must understand are you talking about existing bonds from before the Fed made the change. If so, that is simple. Newly issued bonds will offer lower interest rates than the older ones. This will ...

Purchase this Solution
Free BrainMass Quizzes
Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

View More Free Quizzes
Related BrainMass Solutions

  • How lower interest rates affect the economy

    In contrarily, suppose that the Fed unexpectedly increases the rate of money growth. What are the effect on short-term and long-term interest rates, and why those effects are different.

  • Monetary stimulus and the real estate bubble

    Thus, if the expansionary policy causes long term rates to rise, it will not increase long term potential output and actually cause a decline in GDP.

  • Yield Curve and Interest Rates

    253842 Yield Curve and Interest Rates Explain the yield curve and how it reacts to changes in interest rates, and can you explain why long-term (30-year) bonds generally trade at a higher yield than short-term maturities.

  • High Rates, High Investment

    This confidence also guaranteed that the Fed need not drop its long term bonds, or at least not at once.

  • policy, interest, yield, expectation theory, fees

    pure expectations theory of term structure, a positively sloped yield curve indicates that investors expect A) short term interest rates to be lower next year B) short term interest rates to be higher next year C) falling long-term interest rates

  • Consumer Theory, FED Selling Short Term Securities

    This is an effort to lower the long-term yield curve. With the use of two separate bond market diagrams, one for the short term and one for the long term, show the effect of "operation twist" on short and long term interest rates.

  • monetary policy

    It represents the long-term end of the interest rate spectrum. Lenders must incorporate into their long-term loan pricing decisions their expectations for future inflation and interest rates.

  • Long Term Economic Outlook

    556148 Long Term Economic Outlook Discuss long-term economic outlook for the following countries; United States, Western Europe, Japan, Asia ex-Japan, and Latin America and include views on GDP, inflation, interest rates, currencies, and U.S. monetary

  • Stock Market Evaluation

    The possible banking regulations might the reason for the movement of market and long term interest rates towards decline.

View More Related Solutions