From a macroeconomic perspective, longer-term interest rates - such as home mortgage rates, corporate bond rates, and the rates on Treasury notes and bonds - are far more significant than the funds rate, because those rates are the most relevant to the spending and investment decisions made by households and businesses.
This concept, which is hard to understand and easy to misunderstand, was established, as everyone knows, by Adam Smith in his masterpiece The Wealth of Nations: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”.11 There are two elements at the heart of this.