Do Interest Rates always move together?

7 important questions on Do Interest Rates always move together?

What happens to most short-term interest rates when the Fed changes the federal funds rate?

Most short-term interest rates move in the same direction as the Fed's action.

What is the Zero Lower Bound (ZLB)?

It's the point where short-term nominal interest rates are close to zero.

Why can't interest rates fall much further at lower levels?

At lower levels, interest rates are near zero and can't decline significantly.
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What happens when interest rates go below zero?

People prefer holding cash rather than paying to lend their money.

Why is the ZLB significant for the Fed?

At ZLB, the Fed can't lower rates further to stimulate the economy.

What traditional tools lose effectiveness at the ZLB?

Tools traditionally used by the Fed become less effective at the ZLB.

What unconventional tools does the Fed turn to?

The Fed uses tools like quantitative easing, forward guidance, and interest on reserves.

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