participants could spend less time and effort trying to guess whether the Fed's
intervention into the market is a stabilizing attempt or a dynamic change in monetary policy.
Friedman, "Federal Reserve Policy"; Dutkowsky, "Unanticipated Money
Growth"; Kantor and
Lombra, "Is Interest Volatility Necessarily Harmful?"
Rasche, "Interest Rate Volatility."
Hetzel, "A Better Way to Fight Inflation."
Examples of surveys of interest rates include the University of Michigan
Institute for Social Research Survey, the Decision Makers Poll, and the Blue Chip
According to Milton Friedman, the Fed can control the nominal Federal Funds
rate but not the real rate (i.e., the nominal rate minus the rate of inflation). He
also maintains that the Fed cannot control both the Federal Funds rate and the
Since capital markets are linked internationally, real interest rates in different
countries tend toward the same level. Nominal rates, however, reflect anticipated
movements in exchange rates, which also reflect anticipated rates of inflation.
There is concern that the Federal Reserve System is losing control over monetary policy in the United States as foreign capital flows undermine the targets set
by the Federal Open Market Committee and limit its ability to set domestic policy.
In 1990, when interest rates were rising, Fred Bergsten, director of the Institute
for International Economics asserted that coordination of interest rates among the
industrialized nations was necessary because "interest rate hikes in each major
country are being driven to a considerable degree by developments in the others.
The result is an upward ratchet of rates that threatens growth everywhere" ( Wall
5 April 1990, A30).
However, statistical research by John D. Paulus of Morgan Stanley & Co. comparing the period 1984-89 with 1960-85 showed no significant difference in the Fed
Funds rate's influence over ten-year bond yields or any significant relationship
between domestic short-term rates and foreign interest rates during the two sample
periods ( Business Week, 4 June 1990, 124).
Gordon H. Sellon Jr. "Has Financial Market Volatility Increased?" Economic Review of the Federal Reserve Bank of Kansas City 74
( June 1989):17-30.
W., T. Humphrey, and
R. Timberlake. "Fisher, Thornton, and the
Analysis of the Inflation Premium." Journal of Money, Credit and Banking 17 ( August 1985):371-77.
Dutkowsky D. H. "Unanticipated Money Growth, Interest Rate Volatility, and
Unemployment in the U.S." Review of Economics and Statistics 69
A. Steve, and
Gary Stone. "Inflation Expectations Surveys as Predictors
of Inflation and Behavior in Financial and Labor Markets." Quarterly Review
of the Federal Reserve Bank of N. Y. 14 (Autumn 1989):20-22.
Friedman Ben. "Federal Reserve Policy, Interest Rates Volatility, and the U.S.Capital Rationing Mechanism."