The success of Fed intervention depends in part on how closely changes in long-term interest rates follow changes in short-term interest rates.
If there is a disconnect in the influence of short-term interest rates on long-term interest rates,then monetary policy is largely ineffectual.

Question

Quizplus · Accepted Answer

This statement is true. The effectiveness of Federal Reserve (Fed) intervention in the economy depends on the response of long-term interest rates to changes in short-term interest rates. A significant disconnect between short-term and long-term interest rates can make monetary policy largely ineffectual. This is because short-term rates influence long-term rates, which in turn affect borrowing and investment decisions of households, businesses, and financial institutions. If long-term rates do not respond to changes in short-term rates, then monetary policy measures such as interest rate cuts or bond purchases may fail to stimulate economic activity and inflation.

The Success of Fed Intervention Depends in Part on How