If the Fed’s control of long-term rates depends in substantial part on the induced buying and selling behavior of other investors, our grip on the steering wheel is not as tight as it otherwise might be. Even if we make only small changes to the policy parameters that we control directly, long-term rates can be substantially more volatile.
And if we push the recruits very hard – as we arguably have over the past year or so – it is probably more likely that we are going to see a change in their behavior and hence a sharp movement in rates at some point.