Thursday, July 15, 2010

Yes, the Fed can flatten the Treasury yield curve, for a moment

Menzie points us to a paper by Chris Neely on the effect of Fed bond purchases.  I also noticed that the two year rate is also the lowest in history, as Mish noticed.  So the curve reverts back to steepness within the uncertainty interval of finance.  Overall, we earn less now when we invest.  If the Fed is causing the overall curve to drop in yields, well, that is a multiplier less than one.

We want the curve to get a bit flatter with yields higher on each end. We probably need to do something with the real economy.

No comments: