How do recent financial conditions compare to previous episodes of monetary tightening?

In assessing the appropriate level of monetary policy, a crucial consideration is the extent to which the level of short-term interest rates passes through to broader financial conditions. Long-term interest rates, including those on Treasury securities and mortgages, have been significantly above t...

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Bibliographic Details
Published in:Chicago Fed Letter 2024-08 (498), p.1-10
Main Authors: Gillet, I Max, King, Thomas B
Format: Article
Language:English
Subjects:
Borrowing
Federal funding
Federal funds rate
Federal Reserve monetary policy
Inflation
Interest rates
Securities markets
Variables
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Summary:In assessing the appropriate level of monetary policy, a crucial consideration is the extent to which the level of short-term interest rates passes through to broader financial conditions. Long-term interest rates, including those on Treasury securities and mortgages, have been significantly above their historically predicted paths for most of the last two years. Because each cycle differs in its timing and pace, however, matters are slightly more complicated. In both cases, we find that long-term interest rates have consistently exceeded what the model would have predicted. Because long-term Treasury rates are benchmarks for many private borrowing costs, this is likely to imply that the cost of credit has generally been tighter than we would have expected this cycle, a point we will return to below.
ISSN:0895-0164
2163-3592
DOI:10.21033/cfl-2024-498