One common misperception about monetary policy is that the Federal Reserve controls all interest rates. In fact, the Fed controls only a very short-term rate, the federal funds rate; this is the rate banks charge each other for overnight loans of reserves. Yet Fed policymakers—and central bankers generally—are vitally concerned with the behavior of interest rates of all maturities. In particular, policymakers would like to understand how a change in short-term rates will affect medium-term and long-term rates, because these latter rates determine the borrowing costs people and firms face, which, in turn, determine aggregate demand in the economy.