The Fed and the Secular Decline in Interest Rates.

This paper investigates the secular decline in U.S. Treasury yields and finds that nearly the entire long-term decline in yields since 1989 is concentrated within a narrow three-day window around Federal Open Market Committee (FOMC) meetings. This pattern holds for various maturities and decompositions of yields, including real yields derived from Treasury Inflation-Protected Securities (TIPS), and is strongly linked to the Fed's short rate actions and its long-run federal funds rate forecasts, known as the "dot plot." The findings suggest that Fed announcements serve as important signals or guidance about the long-run path of interest rates, prompting market participants to update their expectations, despite the prevailing view that the Fed has limited control over long-term real interest rates. The paper discusses potential explanations, including the Fed's superior information or market perceptions thereof, behavioral factors, and risk premia related to FOMC uncertainty, while emphasizing that the evidence does not conclusively establish the Fed as the causal driver of the secular decline.