How does fomcs action affect the 3 month interest rate

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Reference no: EM131221649

Suppose the federal funds rate is 3 percent. Bond traders expect it to remain at that level for 3 months and then rise to 3.5 percent for 9 months.

However, the FOMC raises the rate to 3.5 percent immediately.

After this action, traders expect the funds rate to stay at 3.5 percent for a year.

How does the FOMC's action affect the 3-month interest rate, the 6-month rate, and the 1-year rate?

Reference no: EM131221649

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