Bond Market Peer Response

Bond Market Peer Response

Initial Response

The inflation or the general prices level of goods and services in the economy has increased in long-term objectives to about 2%. According to the Press Conference that took place on December 14, 2016, this can be attributed to the increase in monetary policy by 0.25 percent resulting in 0.5 % to 0.75 % increase in interest rates (FOMC, 2017). The video points out that as a result the economy is expected to grow since interest rates form a major component of the monetary policy of a country. If the federal funds rate increases it will help to stabilize the economy over a few years. The press conference points out that as the monetary policies increase the government is compelled to invest the profits from the increasing volume of treasury securities and principal payments from bonds. However the statement is contradictory to the principles guiding the monetary policy and the bond market since the yields of bonds are affected by the monetary policies (Kimberly, 2021). This is because an increase in the monetary policy increases bond yields as the prices of bonds decline. Any increase in the interest rates and inflation will result in a decline in the bond prices leading to higher bond yields.

Peer Response

I agree with your observation from the video clip that the monetary policy has increased by 0.25 % resulting in to increase of 0.5 % to 0.75 % in the interest rates that have made the general price levels in the economy raise to 2% in the long-term objectives (FOMC, 2017). Moreover, I agree with the observation that the increase in money supply in the economy will affect inflation with interest rates being a key component of the country’s monetary policy. Moreover, I agree with your sentiments that federal funds rates can be used to stabilize the economy over a few years. I agree with your comments that the relationship between bonds, interest rates, and inflation is inverse. The bonds and interests rates and inflation have an inverse relationship. An increase in interest rates and inflation leads to a fall in the bond price (Kimberly, 2021). In addition, inflation and interest rates have similar behavior to bond yields. They tend to move in the opposite direction.


FOMC (2017). Press Conference on Dec 14, 2016.

Kimberly, A (2021). How does the Feds Fund Rate work and what is its impact.

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