Interest rates at all maturities have moved up sharply since last month. Some of the increase can be traced to speculation that the Federal Reserve will increase the federal funds rate. If the market expects such an increase to be delayed several months, this may explain the pronounced steepening at the short end of the yield curve—the 3-year, 3-month spread increased from 11 to 44 basis points. But such short-term expectations about policy should not have a pronounced effect on longer rates, which also increased substantially. A greater worry might be the possibility of higher inflation. One admittedly short-term measure, however, which combines nominal rates with professional forecasts of inflation, indicates only a minuscule upturn in inflationary expectations.
Suggested citation: "Interest Rates," Federal Reserve Bank of Cleveland, Economic Trends, no. 99-03, pp. 06, 03.01.1999.