At the same time, increases in the net supply of saving in global capital markets – which, to a significant extent, are a product of the large current account surpluses of some emerging-market economies and of oilproducing nations – have resulted in lower real long-term interest rates both in the United States and abroad.
Clearly, to understand and evaluate the behavior of the term structure and to assess the implications of current yields for the domestic economy, the Fed must take into account the various effects of foreign capital flows on U.S. yields and asset prices, a task that can be quite challenging. With globalized financial markets comes increased financial interdependence.