The larger the federal deficit, other things held constant, the higher are interest rates. when the economy is weakening, the fed is likely to increase short-term interest rates. during the credit crisis of 2008, investors around the world were fearful about the collapse of real estate markets, shaky stock markets, and illiquidity of several securities in the united states and several other nations. the demand for u. s. treasury bonds increased, which led to a rise in their price and a decline in their yields. the federal reserve’s ability to use monetary policy to control economic activity in the united states is limited because u. s. interest rates are highly dependent on interest rates in other parts of the world.