Why oh why can't we have a better press corps?
This is really embarrassing, New York Times: really, really embarrassing.
The first joke comes in Casey Mulligan's first paragraph: the Fed does not lend money to banks on an overnight basis at the Federal Funds Rate. The Fed lends money to banks at an interest rate called the Discount Rate. The Federal Funds rate is the rate at which banks lend their Federal Funds--the deposits they have at the Federal Reserve--to each other. That's why it is called the Federal Funds rate.
The second joke comes in the second paragraph. Hansen and Singleton (1983) is "new research"?
The third joke is the entire third paragraph: since the long government bond rate is made up of the sum of (a) an average of present and future short-term rates and (b) term and risk premia, if Federal Reserve policy affects short rates then--unless you want to throw every single vestige of efficient markets overboard and argue that there are huge profit opportunities left on the table by financiers in the bond market--Federal Reserve policy affects long rates as well. Note the use of the weasel word "largely".
The New York Times badly needs to clean house here: there are lots of economists who would love to write for the New York Times for free and who know the difference between the Federal Funds Rate and the Discount Rate:
Casey B. Mulligan: Who Cares About Fed Funds?: New research confirms that the Federal Reserve’s monetary policy has little effect on a number of financial markets, let alone the wider economy…. The Federal Reserve and especially its regional bank in New York are actively engaged in buying and selling Treasury securities, and the Fed lends money to banks on an overnight basis, at an interest rate called the federal funds rate….
A 1983 study by Lars Peter Hansen of the University of Chicago and Kenneth Singleton of Stanford showed that short-term rates on Treasury bills and short-term returns on stocks traded on the New York Stock Exchange had very little correlation with consumer spending….
Eugene Fama of the University of Chicago recently studied the relationship between the markets for overnight loans and the markets for long-term bonds…. Professor Fama found the yields on long-term government bonds to be largely immune from Fed policy changes…