If the Fed is buying bonds, then it wants bond prices to _____ and the federal funds rate to _____.

Question

Quizplus · Accepted Answer

When the Fed buys bonds, it creates demand for these securities, causing their prices to rise. As bond prices rise, their yields (which move inversely to prices) fall. This decrease in yields pushes down interest rates in general, including the federal funds rate. Therefore, the Fed wants bond prices to rise (choice B) and the federal funds rate to fall.

If the Fed Is Buying Bonds, Then It Wants Bond