Greenspan's Conundrum

by Matthew Kerkhoff
Financial Sense

On February 17, 2005, Federal Reserve Chairman Alan Greenspan testified before the Senate Committee on Banking, Housing, and Urban Affairs. He noted that despite a recent 150 basis point increase in the federal funds rate, long-term rates had actually trended lower.

Rejecting a variety of explanations at the time, Greenspan called this a “conundrum.”

In his experience, movements in short-term rates typically coincided with similar magnitude and direction movements in longer-term rates. He described the theory behind this as follows:

Continue Reading at…