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Money and Financial Markets

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Interest rates fell across the entire maturity spectrum last winter, when incoming data revealed an abrupt weakening in economic conditions. Initially, the yield curve remained inverted at the low end because investors anticipated an attenuated response from the FOMC. This was evident in the spread between the intended federal funds rate and the 2-year Treasury rate, which exceeded 1 percentage point in early March. But when the FOMC responded aggressively in early spring, this spread fell precipitously.

Suggested citation: "Money and Financial Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 01-06, pp. 05-07, 06.01.2001.

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