Final answer:
The Federal Reserve can control short-term interest rates by targeting the Federal Funds rate and conducting open market operations. While it has less direct control over long-term interest rates, it can influence them through policies like quantitative easing. However, many other economic factors also influence long-term rates, making the Fed's control less direct.
Step-by-step explanation:
The Federal Reserve (Fed) does indeed have control over short-term lending rates through its targeting of the Federal Funds rate. The Federal Funds rate is the rate at which banks lend funds to one another overnight. When the Fed wishes to lower interest rates to stimulate the economy, it buys bonds through open market operations, which adds money to the banking system and lowers the federal funds rate.
However, the control over long-term interest rates is more indirect and less controllable. Long-term rates are influenced by broader economic factors such as projections for inflation and economic growth, as well as the Fed's credibility and expectations regarding its future monetary policy.
It is true that during the aftermath of the 2008-2009 financial crisis, the Fed established a near-zero target range for the federal funds rate. Unable to lower short-term rates any further, the Fed began purchasing longer-term securities, aiming to put downward pressure on long-term interest rates and stimulate economic activity. However, this policy, known as quantitative easing, does not allow the Fed to set long-term rates directly, but rather seeks to influence them.