Did the Fed’s Announcement on Wednesday Work?

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.


On Wednesday, the Fed unexpectedly announced that it would maintain low interest rates at least until unemployment had dropped below 6.5 percent, and that it would tolerate inflation of up to 2.5 percent in order to get there. This was more aggressive forward guidance than it had ever given before, and if the Fed’s guidance is effective, it should have had an effect on medium-term interest rates. So did it?

The chart on the right shows the yield of 10-year treasury bonds on Wednesday. In the morning, before the Fed announcement, they were trading around 1.65-1.66. After the Fed announcement they were trading around 1.69. That’s an increase of about two percent.

I’d like to hear from the market monetarists about this. Does a change of this magnitude mean the Fed’s guidance was effective? Or ineffective? My recollection—which might be wrong!—is that forward guidance isn’t supposed to affect interest rates gradually. It’s supposed to have an immediate impact, so it should be soon enough to comment on this. Anyone?

BEFORE YOU CLICK AWAY!

Mother Jones was founded to do journalism differently. We stand for justice and democracy. We reject false equivalence. We go after stories others don’t. We’re a nonprofit newsroom, because the kind of truth-telling investigations we do doesn’t happen under corporate ownership.

And the essential ingredient that makes all this possible? Readers like you.

It’s reader support that enables Mother Jones to devote the time and resources to report the facts that are too difficult, expensive, or inconvenient for other news outlets to uncover. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

BEFORE YOU CLICK AWAY!

Mother Jones was founded to do journalism differently. We stand for justice and democracy. We reject false equivalence. We go after stories others don’t. We’re a nonprofit newsroom, because the kind of truth-telling investigations we do doesn’t happen under corporate ownership.

And the essential ingredient that makes all this possible? Readers like you.

It’s reader support that enables Mother Jones to devote the time and resources to report the facts that are too difficult, expensive, or inconvenient for other news outlets to uncover. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate