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Unformatted text preview: points above the 10 year treasury note (long term mortgage rates track 10 year Treasury notes) 18 The Federal Reserve Dual mandates to control inflation while maximizing employment Sets/influences interest rates through Federal Open Market Committee (FOMC) In a fast growing economy, demand can increase faster than supply causing inflation Fed will increase interest rates to cool the economy (and possibly cause a recession) In a recession (typically low inflation), Fed will lower interest rates to stimulate economic growth 19 The Fed Funds Rate Sets Short Term Interest Rates 0 ­ .25% 20 The Fed Also Manages Long Term Interest Rates 21 The Treasury Yield Curve Flat curve signals potential recession Inverted curve signals overheated economy/tight money policy to cool inflation and normally leads to a recession Steep slope curve to stimulate economy during recession, with market expecting much higher 22 rates later The Treasury Yield Curve GM ExxonMobil US Treasury Corporations and individuals borrow at rates above the yield curve 23 The 10 Year Treasury Note Drives 30 Year Mortgage Rates 30 year mortgage rates (FNMA Coupon) track the 10 year treasury note 24 How Short Term Interest Rates Impact Consumers Positive impacts from current policy Interest rates on variable interest rate loans will be low (which should stimulate the economy) Negative impacts from current policy Int...
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