Why Haven't Long-Term Interest Rates Fallen?
In 2001, the Federal Reserve lowered the federal funds rate target more than it had in over 25 years, but long term interest rates didn’t budge. Has monetary policy become ineffective? Just the opposite, the authors argue. The stability of long-term rates shows that people don’t expect inflation to rise. That confidence, especially in light of the dramatic shocks the economy experienced, attests to the success of the central bank’s policies.
The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit clevelandfed.org for updates.