When working properly they are. But the appropiate question is, “As compared to what?” Government policy is often lauded because it is supposedly a stabilizing influence in an otherwise turblulent world. Now I understand that stabilizing prices is not the same thing as stabilizing interest rates, but I still think the following is informative.
Every day the Federal Reserve updates data on various historical interest rates in its H15 report. It tracks government rates, corporate rates, and a variety of other rates. Included here is the historical record of the effective federal funds rate. This is an administered (i.e. not a market rate) rate, set by the Board of Governors of the Federal Reserve through its open market purchases and sales of treasuries.
Since April of 1971 (earliest data available for my later comparison) the effective weekly funds rate has averaged 6.56%
This report also tracks historical conventional mortgage rates. These are market determined (long-term) interest rates.
Since April of 1971, mortgage rates have averaged 9.18%
One would expect long-term rates to both be higher (recall the term theory) and to also have a higher volatility. However, this is not the case.
The standard deviation of the federal funds rate is 3.46% over this time
The standard deviation of the mortgage rate is 2.77%
I’d be entertained by explanations for this anomoly (or reminded why this is not an anomaly), but the fact remains that government set interest rates (short-term) are 25% more volatile than the supposedly “volatile market” set rates. If this is what our government is doing when it is trying to promote stability, one wonders what happens when the goal is something else.