Monetary Policy Tightening and Long-Term Interest Rates


The Federal Open Market Committee (FOMC) has maintained an accommodative monetary policy ever since the 2007 recession, and some fi nancial market participants are concerned that long-term interest rates may increase more than should be expected when the Committee starts to tighten. But a look at fi ve historical episodes of monetary policy tightening suggests that such an outcome is more likely when markets are surprised by policy actions or economic developments. Given the Fed's new policy tools, especially its evolution toward more transparent communications, the odds of a surprise are far less likely now.

Federal Reserve Bank of Cleveland Economic Commentary