Consequently the yield curve remained inverted as well following the Fed’s policy. After that efforts were made to make the curve steep which did not prove very successful immediately but started to give results later on.
The market and the Fed have had different outlooks regarding policy that should have been adopted since 2002. The Fed funds rate remained negative in mid of the year, below the CPI index. Market analysts argued that such a policy is consistent with recessionary conditions but not with healthy economic growth which leads to a rise in interest rates, requiring the Fed to take up its fund rate target which it shunned to do at that time. Its aim appeared to be to create a little inflation to aid the stock market and then control it after the desired affect was achieved. Analysts argued that this was not considering the potential ill effects of this move on the market which would have to be dealt with.
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