US Treasury Yields Essay Example | Topics and Well Written Essays - 1000 words

US Treasury Yields - Essay Example High-interest rates and inflation during Carter regime discouraged investment with US long-term Treasury yield exceeding 15% and short term T-Bills yielding nearly 20%. Reagan regime restored consumer confidence, through the appointment of Paul Volcker the chair of Federal Reserve Board with his tireless effort and determination of defeating a national economic disaster bore fruits. His fruits were putting the nation into an intentional recession where money supply was tightened, which slowed down the pace of economic growth in the economy, reducing the employment. Inflation was completely abated in the year 1982. After inflation Volcker was devoted to rejuvenating the economy, one of the policies was to reduce the interest rates, this increased money in circulation within the economy that encouraged investment reduced the cost of production and cost of living taming demand-pull and cost pull inflations. Reduction in interest rates encouraged investment with long T-Bills yielding 1% and short-term T-bill yielding 4%. Federal Reserve opinion to increase the interest rates will increase the cost of capital in the economy, and a consumer will be compelled to spend extra coins on the food basket. It will also be translated to investment where due to high-interest rates the profit margins of the lenders will be reduced, moneylenders lend with an objective optimizing revenue.