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What could be the cause of this increase? Would the trend continue? Why or why not?

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  • They didn't. The federal reserve doesn't make that decision, the Treasury does.
    – jjanes
    Jan 24 at 18:06
  • @jjanes I'm confused about the responsibilities between Fed and the Treasury. Could you please briefly describe who does what? Thanks. Jan 24 at 18:42
  • @DStanley According to the article, the Fed "adjusts the interest rates paid for U.S. Treasuries, bonds, and other debt issued by the Treasury. ", so the Fed is the one who raises the fixed rate of I bonds? Jan 24 at 20:47
  • (@DStanley) many claims in that article are wrong. The Fed does not directly set rates for any Treasury security. It does effectively set the interbank funding rate, which drives short-term market rates for all issuers because they compete with bank loans for investors. The short-term market rate and the Fed's QE/QT both influence but do not set long-term market rates, where Treasuries also compete. So Fed policy has some indirect effect on Treasury rates, but only along with all rates for all (new or tradable) products. Jan 26 at 10:51

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I have not seen any specific rationale for the setting of the fixed rate, but my assumption would be that it's based on treasury rates to be competitive with treasury bonds (why would you buy a bond at a lower floating rate when you could get a higher fixed rate?) In short, the Treasury sets the fixed rate to be just high enough to be attractive to investors while minimizing the amount of interest they pay.

Would the trend continue? Why or why not?

No one knows - you could look at the Treasury yield curve and see if the market thinks that interest rates in general will go up or down, but even that is a guess, and does not directly affect the fixed rate for I-bonds.

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