mained within a narrow range. But from 1926 to the present, the behav-
ior of both long- and short-term interest rates changed dramatically.
During the Great Depression of the 1930s, short-term interest rates fell
nearly to zero, and yields on long-term government bonds fell to a
record low of 2 percent. In order to finance record wartime borrowings,
the government maintained low rates during World War II and the early
postwar years. Deposit rates were also kept low by strict limits, known
as Regulation Q,^12 imposed by the Federal Reserve on bank deposit rates
through the 1950s and 1960s.
8 PART 1 The Verdict of History
FIGURE 1–2
U.S. Interest Rates, 1800 through December 2006(^12) Regulation Q was a provision in the Banking Act of 1933 that imposed ceilings on interest rates
and time deposits.