Suppose the federal funds rate is 3 percent. Bond traders expect it to remain at that level for 3 months and then rise to 3.5 percent for 9 months.
However, the FOMC raises the rate to 3.5 percent immediately.
After this action, traders expect the funds rate to stay at 3.5 percent for a year.
How does the FOMC's action affect the 3-month interest rate, the 6-month rate, and the 1-year rate?