technically, the fed doesn’t set bond yields. however, for all intents and purposes it does set short-term interest rates through its open market operations. and every other interest rate in the world is, to one extent or another, priced off of short-term interest rates in the u.s. that’s why the fed “matters” to the extent it does. so, the obvious question as it pertains to the current yield curve is, “why haven’t long-term rates been rising as short-term rates have been increasing?” one should get paid a time premium, after all, to compensate for the risk associated with holding a longer term bond as opposed to short-term note. the answer is that bond market participants, in aggregate, are thinking, “i think the fed’s raising of short-term interest rates will slow the economy so much that they will end up lowering rates in the not-too-distant future. consequently, i’m going to stay put in my long-bond position because as rates begin to decline, my time premium will be restored. and, who knows, if things REALLY slow down, maybe my positions will actually increase in value and long-term yields will decline.” they may be right or they may turn out to be wrong. i don’t know. but, that’s what the market’s telling us.
