Understand Term Structure of Interest

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between the rates on nominal and the government bonds of inflation-protected during the period of June 2004 and June 2005., which means that the inflation is expected remain essentially unchanged. The real GDP growth rate that used to calculate the economy activity during year 2004 and year 2005 was very approach to the prediction. The U.S federal wanted to tight the monetary policy beforehand, while their expectations that the markets have adjusted. From the recent data, it demonstrates that the markets are affected by the major news and is subjected to the variation in U.S federal policy during that period. However, it is not as what is expected over the whole period. The changes in historical relationship between the difference of short-term and long-term rates showed that the latest verification are within the range of historical.

In conclude, the market that appeared as the U.S Federal and the actual events are resulted to be near to the markets is same with the expected changes in the U.S federal policy, so the interest behavior is say to be a failure of monetary policy instead of a term structure puzzle. The markets modified their suspension in order to foresee the U.S federal policy. The markets explained the raising in price of energy treated as relative-price phenomenon for a period which that the long-term inflation will not get any effect. Consequently, the long-term expectation does not need to be revise and the new and unexpected information is accessible, which the long-term interest rate will getting higher.