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Short-term interest rates in the United States have been very low since the financial crisis. Projections of the natural rate of interest indicate that a gradual return of short-term interest rates to normal over the next five years is consistent with promoting maximum employment and stable inflation. Uncertainty about the natural rate that is most consistent with an economy at its full potential suggests that the pace of normalization may be even more gradual than implied by these projections. [ABSTRACT FROM AUTHOR]

A new proposal by the Basel Committee on Banking Supervision for setting the amount of capital banks must hold against potential losses from interest rate risk uses only a few, very stylized scenarios. Analysis shows the proposed scenarios are extremely unlikely to occur. While they may be appropriate for setting bank capital guidelines, they are much less relevant for everyday risk management. Instead, using a modeling framework with a plausible range of interest rate scenarios would be more relevant to help banks manage their interest rate risk. [ABSTRACT FROM AUTHOR]

The Federal Reserve has indicated that it may raise the federal funds rate from its current value near zero in 2015. This forward policy guidance is broadly consistent with expectations from business surveys on the most likely timing for the funds rate liftoff. It also appears in line with estimates of policy liftoff from forward interest rates derived from Treasury yields. However, in interpreting forward rates, it is important to account for the zero lower bound on interest rates. [ABSTRACT FROM AUTHOR]

The article focuses on the identification on the sources of the decline in the long-term bond yields of the U.S. It says that the bias-corrected estimates in the standard methods imply the attribution of the decline in long-term interest rates to lower risk compensation. It adds that the correction of the estimation bias is vital to understand the dynamics of interest rates.

The article presents an analysis of the economic impact of Operation Twist, the 1961 initiative by the administration of the U.S. President John F. Kennedy and the Federal Reserve, which is the precedent of the large-scale asset purchase program, QE2, in 2011. It provides a comparison between Operation Twist and QE2, which are both aimed at lowering longer-term interest rates. It says that Operation Twist has reduced long-term Treasury yields by approximately 0.15% point.

Focuses on U.S. Federal Reserve Chairman Alan Greenspan's characterization of the behavior of long-term interest rates as a “conundrum” in a congressional testimony on February 16, 2005. Tendency of long-term rates to increase as monetary policymakers raise short-term rates; Consideration of the decrease in yields on long-term U.S. Treasury securities; Tremendous increases in purchases of U.S. Treasury securities by foreign central banks.

Comments on the efforts of the Federal Reserve Bank of San Francisco to raise interest rates in California. Perception of inflation risks in the economy; Relationship between productivity and gross demand growth; Accounts on job and investment returns; Implications of the rate increase for the economy.