Controlling the Yield Curve

The video discusses yield curve control as a method to cap bond yields, primarily used by the Fed to stimulate the economy by adjusting interest rates. During the pandemic, the Fed resumed bond purchases to maintain low long-term rates, supporting businesses and consumers. The Fed may further target specific long-term rates by buying bonds, a strategy already employed by central banks in Asia. Historically, the Fed successfully capped yields during World War II without excessive debt purchases. This approach is considered more appealing than negative short-term rates, as seen in Europe and Japan.

What challenges does the Fed face in managing interest rates during a recession?

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Why might targeting the belly or five-year maturities be more appealing for the Fed?

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