Re:The Great Steepening
by nickles on Wednesday March 23, 2022 @09:12AM
(#30778096)
The front of the yield curve is driven much more by Fed policy than the tail end of the curve. QE was utilized to try and influence longer tenors. Ultimately the term structure is driven by supply and demand, so the composition and size of the Fed's balance sheet has a direct impact on the shape of the curve.
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Re:The Great Steepening
by bubbleRefuge on Wednesday March 23, 2022 @09:57AM
(#30778506)
well, i'd say all interest rates are endogenous: determined by fed policy or future expectations of fed policy based on macro variables. The fed can manufacture as much 'funding' of demand as it wants to as it has an unlimited buying power.
> all interest rates are endogenous: determined by fed policy or future expectations of fed policy based on macro variables
The Fed frames its policy response in terms of the somewhat nebulous natural rate, which implies that there is some exogenous component to rate policy. Additionally, rates have consistently trended downwards for 500 years, well before the invention of central banks [0], supporting the notion that rates are driven by exogenous factors.
[0] https://econreview.berkeley.edu/the-long-decline-of-global-i...