In capacity-designed steel moment resisting frames (MRFs), inelastic deformations are mostly concentrated in the steel beams and the column fixed ends of the first story, while the participation of the panel zones in energy dissipation is limited. In such a design context, flexural strength degradation due to local instabilities forming in the steel beam ends is likely at modest lateral drift demands. Consequently, structural repairs are expected in the aftermath of low probability of occurrence earthquake events. One of the primary reasons for this design principle is the increased fracture potential of beam-to-column connections during the 1994 Northridge earthquake. Recent experimental findings on welded moment connections that are compliant with the current welding specifications and quality control indicate a stable hysteretic response up until 5-6% lateral drift demands and limited damage on the beams when panel zones are designed to achieve shear distortions higher than 10γy (where γy is the panel zone shear distortion at yield). This paper contrasts the finite element simulation results of welded beam-to-column connections that are designed with elastic and highly inelastic panel zones. The simulation results reveal that by allowing for inelastic deformations within the panel zone, the beam-to-column connection achieves an instability-free inelastic response up until high lateral drift demands.