Which type of interest rate is generally considered the most volatile in the economy?

Short-term interest rates are typically more volatile than long-term rates due to their sensitivity to changes in economic conditions, monetary policy, and central bank actions. In the short term, interest rates can fluctuate rapidly in response to various factors such as inflation expectations, changes in economic growth, and adjustments in the federal funds rate by the central bank. This volatility is often reflected in products tied to short-term rates, such as Treasury bills or other money market instruments.

Because short-term rates are more susceptible to immediate economic shifts, investors and borrowers using short-term financing options may experience more pronounced changes in interest costs compared to those tied to fixed or long-term rates. Fixed rates provide predictability and stability over time, while variable rates can fluctuate but are often less susceptible to rapid changes than short-term rates in a volatile economic environment.