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Lately, rising longer-maturity bond yields have been in the news. Many people write as though the rising yields show that "the market" believes that the Federal Reserve will raise interest rates within the next few years (presumably due to rising inflation rates).

But isn't a rising expected rate of inflation reason enough for yields to rise? After all, higher inflation means lower real yields. What does this have to do with the Federal Reserve?

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  • $\begingroup$ well they control the base money supply and therefore can have a significant effect on inflation... $\endgroup$
    – user20574
    Commented Mar 1, 2021 at 16:23
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    $\begingroup$ This question overlaps another recent question. economics.stackexchange.com/questions/42806/… $\endgroup$ Commented Mar 1, 2021 at 16:28
  • $\begingroup$ @user253751 Sure, but suppose the Fed disappears overnight. Isn't an expectation of higher inflation in the future enough to explain a steepening yield curve? $\endgroup$
    – rj7k8
    Commented Mar 1, 2021 at 18:57

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