What describes the difference between long-term and short-term interest rates?

The concept of interest rate spread is key to understanding the difference between long-term and short-term interest rates. Interest rate spread refers to the difference between the rates of two different types of debt instruments, typically a long-term rate compared to a short-term rate. This spread is influenced by various factors, including economic conditions, inflation expectations, and monetary policy.

In general, long-term interest rates are typically higher than short-term rates due to the risks associated with time, such as inflation and uncertainty over a longer horizon. A wider spread can indicate market expectations of higher inflation or stronger economic growth, while a narrower spread may suggest a more stable economic outlook.

While the other options touch on relevant aspects of interest rates, they do not directly define the specific differentiation between long-term and short-term rates as clearly as the interest rate spread does. Median pertains to a central value rather than comparing different time frame rates, fluctuation describes the variability of rates but not the relationship between different durations, and differential is a broader term that can apply to other contexts without specifically addressing the time component relevant to interest rates.