Second, the interest elasticities are not large. There must be something more to the answer to the question in the heading. Interest rates effects on expenditure, particularly housing, consumer durables and business plant and equipment. A change in the Fed funds target may or may not affect expected lon term rates depending on how expected inflation changes. Bank portfolios adjustments Fed operations in the market for reserves lead banks to adjust their balance sheets.
International effects Consider a tighter monetary policy that leads to increases in interest rates.
Financial assets in the domestic currency become more attractive and there is an inflow of capital. Difficulty in determinin when to change policy.