Assignment:
Question: What is the relationship between the Fed funds rate, the 10 year (US) T-bill and the Mortgage rate?
If the fed funds rate goes up, what exactly is affected? I know it's very short term investments, but what exactly? is it credit card rates? (examples please)
Then, what is expected to happen to the 10 Year T-bill? Why?
Then what will happen to the Mortgage rates? Why?
I've been reading articles that say that foreign investment in american 10 year T-Bills raises the price of bonds, lowering their interest rate, and that leads to lower mortgage rates.. which caused the housing boom. (Is my understanding correct?)
And now im reading that Alan Greenspan is raising the fed funds rate to try to influence the 10 year T-bill interest rates to go up higher, to control the housing market? (how does that work? why would the fed funds rate affect 10 year t-bills?)
Wouldn't that just cool off the economy? Why can't he just raise mortgage rates instead of the fed funds rate?