Transmission Mechanism
The chain of cause-and-effect through which a Federal Reserve policy decision reaches real-economy outcomes. The typical chain runs: FOMC decision changes administered rates (IORB and ON-RRP) -- short Treasuries and money markets reprice -- longer Treasuries and mortgage rates follow -- corporate borrowing costs and stock-valuation discount rates adjust -- households and firms change real spending and investment decisions. Each link adds lag and noise, which is why monetary policy is often said to work with "long and variable lags."
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Related terms
10Y Treasury · Altman Z-Score · Asset Sensitivity · Basel III · Bond ETF · Bretton Woods
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