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Federal Reserve Bank of San Francisco
FRBSF Economic Letter
The long-term interest rate conundrum: not unraveled yet?
Tao Wu

In congressional testimony on February 16, 2005, Federal Reserve Chairman Greenspan characterized the recent behavior of long-term interest rates as a "conundrum." Typically, long-term rates tend to rise as monetary policymakers raise short-term rates. But not in the current episode. Despite steady monetary tightening beginning in the middle of 2004, the yields on long-term U.S. Treasury securities actually have declined since then by about 50 basis points. As a consequence, the current level of long-term interest rates seems to be well below what one would expect on the basis of economic fundamentals.

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Tao Wu, "The long-term interest rate conundrum: not unraveled yet?" , Federal Reserve Bank of San Francisco, FRBSF Economic Letter, number 08, 2005.
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Keywords: Monetary policy ; Open market operations ; Government securities ; Federal Open Market Committee
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