In the fed funds market, banks that are short on reserves borrow from banks that have excess reserves. The Federal Reserve closely controls the volume of reserves and, therefore, the federal funds rate. Federal Reserve Banks also lend banks reserves, on a limited basis, at the discount rate . Short-term market rates tend to move together, though not in lockstep. Increases in short-term rates generally indicate either rising economic growth or rising inflation.
Consumers sometimes borrow for long periods or place their money in long-term instruments.
Mortgage interest rates are rates on the loans used by consumers to purchase homes. Home mortgages typically require the purchaser to pay for a house over periods ranging from 15 to 30 years. Long bond rates are the interest rates paid the by the U.S. Treasury on Treasury bonds. Treasury bonds allow the federal government to borrow money from consumers and others for ten years or longer. Federal Reserve policy can indirectly affect long-term rates.