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    Federal Reserve activity

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    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.)

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    Federal funds rate target
    <br>I disagree. Normally a low rate of Fed funds will keep the longer term 10 year Treasury rate to be also low. ...

    Solution Summary

    Federal Reserve activity is emphasized.