The yield on our own benchmark 10-year U.S. Treasury security has increased lately, but at 2.3 percent it is still far below what was normal before the financial crisis. In fact, this next chart shows that, as growth and inflation have fallen, longer term interest rates have fallen as well over the past 35 years (figure 13).
So why are long-term interest rates so low? Many of you will no doubt be thinking, “They are low because you people at the Fed set them low!” While there is an element of truth there, that is not the whole story. The FOMC has considerable control over short-term interest rates.