If the Federal Reserve surprises investors by announcing an easing of monetary policy:
A) it should have no impact on the slope of the yield curve.
B) we should expect the yield curve to possibly become inverted.
C) the yield curve would flatten.
D) we should expect the yield curve to steepen.

Question

Quizplus · Accepted Answer

If the Federal Reserve surprises investors by announcing an easing of monetary policy, it would typically result in a decrease in short-term interest rates. This would encourage borrowing and spending, stimulating economic activity. As a result, investors may begin to expect higher inflation and demand higher long-term interest rates, which would cause the yield curve to steepen.

If the Federal Reserve Surprises Investors by Announcing an Easing