Go to the web site of the Federal Reserve Bank of St. Louis (FRED) (fred.stlouisfed.org) and download to the same graph data from January 1984 to the most recent available month on the nominal federal funds rate (FEDFUNDS) and the nominal 10-year constant maturity U.S. Treasury security (GS10).
a. Is the relationship between the federal funds rate and the long-term nominal interest rate as strong as the relationship between the federal funds rate and other short-term nominal interest rates? Briefly explain.
b. Now add the monthly interest rate of the 30-year fixed rate mortgage (MORTG) to your graph. Is the relationship between the federal funds rate and the mortgage rate stronger or weaker than the relationship between the federal funds rate and the interest rate on 10-year U.S. Treasury notes? Briefly explain. In particular, comment on the behavior of mortgage interest rates during the first part of the 2007–2009 recession.