Fed And Interest Rates Essay

1402 words - 6 pages

The Fed and Interest RatesDave Pettit of The Wall Street Journal writes a daily column thatappears inside the first page of the journal's Money & Investmentsection. If the headlines of Mr. Pettit's daily column are any accuraterecord of economic concerns and current issues in the business world,the late weeks of March and the early weeks of April in 1994 wereintensely concerned with interest rates. To quote, 'Industrials Edge Up4.32 Points Amid Caution on Interest Rates,' and 'Industrials Track On13.53 Points Despite Interest-Rate Concerns.' Why such a concern withinterest rates? A week before, in the last week of March, the Fed hadpushed up the short-term rates. This being the first ...view middle of the document...

During this periodthe Fed tried to keep interest rates low to facilitate growth andspending in hard times. However, when inflation is increasing tooquickly and the economy is gaining strength, the Fed will attempt toraise rates, as it did late last March. This can be considered a signthat we are pulling out of the recession, or atleast it seems the Fedfeels the recession of the early nineties is ending.Directly after the Fed's actions, the stock market was a mess. The Dowtook huge dips, falling as much as 50 points a day. Although no oneknows exactly what influences the market, the increase in interest ratesplayed a major role in this craziness. Mr. Pettit's column on March25th highlights, 'Industrials Slide 48.37,' Mr. Pettit attributes alarge portion of the market's 'tailspin' at this time to, 'Risinginterest rates at home.' It is certainly no coincidence that these twoevents happened at the same time.Alan Greenspan, the current chairman of the Fed comes under greatattack and praise with every move the Fed makes. He is, in a sense, theembodiment of the Fed. He has been in charge of the Fed since 1987.Some economists blame him for the recession of the early nineties. Hisinfluence on the interest rates as chairman of the Fed is monumental.It is his combined job as the Fed to steer the economy in a balancedmanner that does not yield too much to inflation and to keep growthsteady. Predictably, most economists are back seat drivers when itcomes to watching the actions of Allen Greenspan, and they tend to feelthey could much more successfully manage the economy than he. Many alsoagree with his tactics, so it is a two way street on which the chairmanis forced to drive.It seems that not only the analysts are in disagreement of how the fedshould operate, but interestingly enough, the internal policy makersseem to also disagree on what stance the Fed should take. Some of theinternal policy makers are interested in making a more substantialincrease now, while others opt for a more conservative approach, wherethe market can be tested for both good and bad influences from the rateincreases. Allen Greenspan is one of this more conservative group, andit is he is critisized by some for the irradic behavior in the stockmarket...

Find Another Essay On Fed And Interest Rates

Financial Markets Notes: The Flow of Funds and Determination of Interest Rates

2715 words - 11 pages have significant outstanding liabilities to this sector.3.1.1.5 Financial CorporationsTraditionally, this sector is a net borrower of funds.However, from period to period this is reflected in an overall surplus or deficit position.In Australia, this sector tends to borrow from households and the rest of the world and lend to the non-financial corporations and government sectors.Objective 2Explain the nature of interest rates and complete some basic

Solving the Foreclosure Crisis- Decrease Interest Rates, Create Jobs, Financial Education and Stimulus Programs

1171 words - 5 pages rates for all citizens who are in financial need of an interest rate deduction. The second solution is creating jobs that are able to sustain through an economic crisis. The third solution is for states and towns to conduct public seminars on how to manage and budget ones finances during financially herd times. The final solution is for the government to create stimulus programs to prevent homes from going into foreclosure

Rsearch and summarise financial regulators in the Australian ecnonomy as well as interest rates

702 words - 3 pages uses its domestic market operations to determine the cash rate in the money market as a result of the interaction of demand for and supply of overnight funds. On the days when monetary policy is being changed, market operations are aimed at moving the cash rate to the new target level. By accomplishing this, other interest rates in the economy are influenced. A lowering of the cash rate will lead to a cheaper cost of borrowing funds in the cash

The federal Reserve and the Beige Book: How information might affect the decision to raise interest rates

1080 words - 4 pages the fall of 1999, central bank officials gathered in Woodstock, Vt., to talk about the opposite: What would they do if faced with deflation, or widespread falling prices, and they already had cut interest rates to zero? At Woodstock, researchers brainstormed about possible ways the Fed could spur spending, such as adding a magnetic strip to dollar bills that would cause their value to drop the longer they stayed in one's wallet. At the time the

Outline and critically appraise the justifications for the current US monetary policy of very low official interest rates, and the likely consequences of that policy

1436 words - 6 pages challenges that are reminiscent of the 1930's Great Depression. One particular form of stimulus has come from the US Federal Reserve's decision to maintain low interest rates. This paper aims to analyse the justifications for such low interest rates and discuss the likely consequences of such a policy stance.With the onset of the Global Financial Crisis (GFC) in 2007, the US Federal Reserve (the Fed) has shifted towards a policy of monetary easing in

The Federal Reserve and Money Supply If "taxation without representation" could rally the colonists against the British Crown in 1776, tight money and ruinous interest rates

3767 words - 15 pages The Federal Reserve and Money SupplyIf "taxation without representation" could rally the colonists against the British Crown in 1776, tight money and ruinous interest rates might be cause for populist revolt in our own day. Federal Reserve monetary policy also has onerous social burdens, measured by huge changes in aggregate output, income, and employment.The imperious Fed, much like the English Crown two centuries ago, formulates and carries

Examine the effects of a change in interest rates on the price of equity and Government bonds. Briefly explain what other major factors affect the price of equity. 1911 Words

2231 words - 9 pages gilts on behalf of HM Treasury.As with all forms of assets gilts pay a annual yield, known as the coupon in the gilt edged market. However the coupon isn't a perfect guide to the interest rate the Government had to pay when they issued the gilt because stocks are sometimes issued at a premium or discount o their par value.The prices of gilts are determined primarily by interest rates but are also influenced by news and technical influences

Summary of the Federal Reserve's history and policy procedures

838 words - 3 pages intervene, it was too late. The stock market crashed and thus led to a recession of the economy. Many banks failed during that time.Ć War Finance and the Pegging of Interest Rates: 1942-1951During WWII, the spending of US government increased sharply therefore the Treasury issued huge amount of debt. The Fed agreed to help the Treasury pegging the low interest rate, which result in a rapid growth of money supply. When the Korean War

Fed Funds

1490 words - 6 pages "Fed slashes federal funds rate by one-half percentage points". This is what many headlines read after the Fed surprisingly between meetings, cut the short-term interest rates to 4.5%. In reaction to such a surprise, the Nasdaq Composite ended the day up 156.22 points while the Dow soared up 399.10 points. There are numerous reasons as to why the Fed controls interest rates and why in this case there was a surprise cut in the rates. Some of the

Federal Open Market Committee - Another Headache for the Fed?

1821 words - 8 pages becomes the ceiling. The importance of inflation in setting the policy rate has increased: low interest rates will only prevail if inflation remains below 2%. This potentially marks an important shift in the Fed’s thinking on the trade-off between unemployment and inflation. Previously, Fed Chair Yellen believed the costs of overshooting the inflation target were lower than those associated with elevated unemployment. Rising Term Premium Undermines

US Economy Today: The lackluster Recovery

1145 words - 5 pages still higher than the pre-crisis stage, there is still room for more GDP growth, which will bring unemployment rate closer to pre-crisis level, assuming that discouraged workers do not enter the labor force. Therefore, the Fed should not begin its exit from expansionary monetary policy. If the Fed starts the contractionary policy and raises interest rates soon, GDP will decrease because of lower investment spending and net exports. Assuming

Similar Essays

Fed And Interest Rates Essay

1139 words - 5 pages The Fed and Interest Rates      Dave Pettit of The Wall Street Journal writes a daily column that appears inside the first page of the journal's Money & Investment section. If the headlines of Mr. Pettit's daily column are any accurate record of economic concerns and current issues in the business world, the late weeks of March and the early weeks of April in 1994 were intensely concerned with interest rates. To

Interest Rates And Bond Valuations Essay

2298 words - 9 pages The intent of this paper is to define what bonds are as a vehicle for investors including a detailed explanation of the basic terms associated with bonds, the different types of bonds available in the markets, bond ratings, and why investors might want to consider bond investing to have a more diversified portfolio. Finally, the paper will discuss the relationship between bonds and interest rates in determining bond valuations. Following the

The Effect Of Interest Rates On Malaysian Markets And Economy

1104 words - 4 pages Changes in interest rates can have both positive and negative effects on the Malaysian markets. When the Bank Negara changes the rate at which banks borrow money, this has a ripple effect across the entire economy. Interest rates can have an effect on the economy as a whole, the stock and bond markets, inflation and recessions.1.How Interest can affect Malaysian consumer's spendingWith every loan, there is a possibility that the borrower will

Fomc, Interest Rates And How It Affects Us

1690 words - 7 pages it up, slow it down and balance the economy by buying and selling bonds. The FOMC plays an important role on interest rates and how it can affect our mortgages, loan opportunities, property tax and employment possibilities. The Federal Open Market Committee (FOMC) is a board of members twelve members that serve a year term. They are responsible for meeting eight times a year and they will review economic and financial conditions and assessing