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The Fed can set its discount rate, but the market determines the interest rate it will buy bonds at. And there is still a ton of money buying 30 yr bonds that o

The Fed can set its discount rate, but the market determines the interest rate it will buy bonds at. And there is still a ton of money buying 30 yr bonds that only pay ~2.5% interest. The Fed keeps rates low because its in their best interest; they are owners, they want inflation to be as low as possible. As long as they can sell enough debt at current rate they would never raise interest rates. The same reason a company who could sell plenty of debt at 5% wouldn't raise their rate to 7%.

jbarham 12y ago
> ...the market determines the interest rate it will buy bonds at. No, most newly issued government debt in the US, EU and Japan is now bought by their respective central banks at below fair market interest rates. Consider that some European banks now charge savers and pay borrowers [1]. Do you really think that a fair market would accept negative interest rates?! 1. http://www.nytimes.com/2015/02/28/business/dealbook/in-europe-bond-yields-and-interest-rates-go-through-the-looking-glass.html http://www.nytimes.com/2015/02/28/business/dealbook/in-europ...