Can the Fed Control Interest Rates?

With so many market participants focused on Fed policies and their NEXT move, it is important to understand what the Fed can and cannot control.  While the Fed sets SHORT-TERM rates and can use open market operations to control them, the free market sets LONG-TERM rates.


One of the stated objectives of the Fed’s Quantitative Easing program was to lower LONG-TERM rates.  In theory it made sense, but in practice we saw long-term rates RISE during QE operations and then fall once those operations ended.  In other words, QE had the exact OPPOSITE impact on long-term rates.


Fed QE & 10 Year Yields



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New Kent, VA
Jeff joined SEM in October 1998. Outside of SEM, Jeff is part of the worship team at LifePointe Christian Church where he plays the keyboard and bass guitar. He also coaches a club soccer team.