Question
Long Question 1 The Federal Reserve recently announced that it is considering adopting Yield Curve Control as a new policy tool to manage the level
Long Question 1
The Federal Reserve recently announced that it is considering adopting Yield Curve Control as a new policy tool to manage the level of interest rates in the United States. The yield curve control means pegging the yield on one or more of the government securities at a fixed level and hold it here for a certain period of time. For example, it might announce that it would peg the 10-year bond yield at 0.5% (instead of 0.7% as it is now) and hold it there for 2 years.
(a) As a fixed income analyst, state TWO (2) reasons why the Federal Reserve is doing this. (6 marks)
(b) Explain the possible impact of adopting the Yield Curve Control. (4 marks)
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