First, visit the Federal Open Market Committee’s website on Meeting Calendars, Statements, and Minutes. Select the most recent statement (in either PDF or HTML format) for the FOMC meetings and examine the current Federal Reserve stance on interest rates. In your initial discussion post, briefly explain the current stance and then compare it with that of the stance of the time period you selected for Final Project I.In response to your peers, discuss whether you agree or disagree with the Federal Reserve’s current stance and compare the stance of your selected 10- to 15-year period to the stance of your peer’s selected period.To complete this assignment, review the Discussion Rubric document.
Response to jessica w
Hey Everyone,
Time Period: 2000-2015
The current Federal Reserve stance on interest rates is that it is too maintain the target range for federal
funds rate at 1.5 percent to 1.75 percent. With economic activity on the rise at a moderate rate, it has
helped job rates to increase and unemployment rates to remain low. The current stance of monetary
policy is appropriate to support sustained expansion of economic activity, strong labor market conditions
and inflation near the Committees symmetric 2 percent objective (Federal Reserve, 2020).
They also voted to maintain the interest rate paid on required and excess reserve balance at 1.55
percent.
November 6th, 2001 Stance:
The Federal Open Market Committee decided to low its target for the federal funds rate by 50 basis
points to 2 percent. There were concerns about a deterioration in business conditions effecting economic
activity. Although the necessary reallocation of resources to enhance security may restrain advance in
productivity for a time (FRB: Press Release, 2001).
January 30th, 2002 Stance:
The Federal Open Market Committee decided to keep its target for the Federal Funds rate at 1.75
percent (remaining unchanged). This is due to economic activity just beginning to recover.
Those two stances were in response to the economic events that occurred in relation to the September
11th, 2001 terrorist attacks. You can see how events that occur effect the rates and how long it can take to
recover.
May 9th, 2007 Stance:
The Federal Open Market Committees target for the Federal Funds rate is at 5.25 percent. Due to
economic growth being slow at the beginning of the year. The changes in the housing market are still
ongoing.
October 31st, 2007 Stance:
The Federal Open Market Committee decided to lower its target for the Federal Funds rate to 25 basis
points to 4.5 percent. The housing market has effected the rate due to the intensity of the issue.
January 22nd, 2008 Stance:
The Federal Open Market Committee decided to lower its target for the Federal Funds rate to 75 basis
points to 3.5 percent. This was in part to the weakening of the economy and trying to bypass the risks to
potential growth. Credit has tightened for businesses and households.
These stances show the effects that the housing crash had on the Federal Funds rate. Due to the
changes happening in the economy.
Jessica Weirich
References:
Federal Reserve (2020).
https://www.federalreserve.gov/monetarypolicy/files/monetary20191211a1.pdf
FRB: Press Release — FOMC statement and Board discount rate action — November 6, 2001.
(2020). https://www.federalreserve.gov/boarddocs/press/general/2001/20011106/default.htm
Response to alisa
Hello Class,
This weeks readings weren’t easy for me to follow. Some things I had a very difficult time wrapping my
head around.
“Inflation, employment and long-term interest rates fluctuate over time in response to economic and
financial disturbances.” (Minutes of the FOMC, 2019)
In 2019, the unemployment rate was low, household spending was growing and the growth of business
fixed investments has moderated. For those reasons, the committee wanted to maintain a target range
for the Federal Funds Rate at 2.14 to 2.12% and The Board of Governors voted to keep the interest rate
paid at 2.40% Given the circumstances of 2019, the committee stated that the monetary policy is likely to
remain the same for an undetermined amount of time. (Cox, J. 2019)
The 15 year span that I chose is 2000-2015. We know that in the late 2000’s the global financial crisis
also known as the Great Recession impacted the US economy pretty severely.
In order to boost the economy and promote businesses to invest and people to spend more, the Federal
Reserves tend to lower the interest rates. This was a very difficult time because although the Fed was
reducing interest rates the threat of inflation rising. The target rate fell from 5.25% to .25%, which is
effective, zero.
Reference:
Minutes of the Federal Open Market Committee, Jan. 30, 2019, retrieved from:
https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20190130.pdf
Cox, J. Dec. 11, 2019, Fed Decison: Interest rates left unchanged, indicates no changes through 2020
retrieved from: https://www.cnbc.com/2019/12/11/fed-decision-interest-rates.html
Board of Governors of the Federal Reserve System. (2020). Minutes of the Federal Open Market
Committee January 29-30, 2019 [PDF file]. Retrieved from
https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20190130.pdf
In your discussion post, select a 10- to 15-year time period (of your
choosing) over the last 50 years. Then explain how the trends and
changes of the federal funds rate and/or the discount rate have impacted
short-term or long-term interest rates.
Note: The time period you select in this discussion will be used in Final
Project I.
In response to your peers, examine the difference between your chosen
time period and two other periods chosen by peers.
To complete this assignment, review the Discussion Rubric document.
At the beginning of 2006 the federal fund rate was at 4.5% rising to
5.25% by the end of first half of 2006. This rate of 5.25% was unchanged
for a year as this was raised to cool down the rising house bubble during
that period. Cooling came in a way that as federal rates increased the
banks increased their rates reducing the demand for borrowing by the
public. During this period the demand for house property in the US was
on peak and this increase in fed rates created a short term interest rate
hike trying to avoid further borrowing for the house buying.
Federal fund rates were cut by 50 bps to 4.75% in the month of sept
2007 followed by 50bps fall every month or in a quarter reducing the
feral rates to lowest ever by end of 2008 to 0.25%. This comes as the
economic enter into subprime crisis and as the federal funds lower its
rate, it would increase demand for money at lower bank rates increasing
money supply, liquidity and inflation to the market reviving the economy
back.
The federal fund rate then was increased to 0.5% in Dec 2015 and to
0.75% in Dec 2016 as the growth rate stabilized. This created a long
term interest rate impact as the economy was pulled out of major
recession of the century. Janet Yellen is the fed chairperson from Feb
2014 to Jan 2018. The last fed rate hike was in the month of June in the
current year to 1.25%.
Thus federal fund rate places and important position in determining the
short and long term interest rate impacts in terms of monetary policy.
Federal fund rates have an indirect impact on interest rates as the fed
increases rate the money supply in the economy decreases and vice
versa. This can be done to increase/decrease inflation or revive
economy from recession by lower fund rates.
Reference
https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135.
Running head: PLOTTING AND COMPARING FRED DATA
Plotting and Comparing FRED Data
Brendon Cronin
ECO-306 Money & Banking
1/18/19
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PLOTTING AND COMPARING FRED DATA
Plotting and Comparing FRED Data
Interest Rate Graphs
First Graph 1
Second Graph
2
PLOTTING AND COMPARING FRED DATA
Third Graph
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PLOTTING AND COMPARING FRED DATA
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Analysis
Comparison
The rates of prime bank loan and EFFR are included in the two interest rates that
significantly have changed with the passage of time, particularly in the selected 10 year period
from 2006 2016. The above graphs are showing the data for the selected time period. When it
comes to EFFR, it can be seen that there is a reduction in the interest rate within the selected time
period. i.e., 2006 2016. It reduced from almost 4.29 percent to almost 0.54 percent when the
year 2016 ended. In January 2009, a major drop was seen by EFFR when it dropped to 0.15
percent in January 2009 from almost 5.25 percent in mid of 2006. The aim of the decrease in
EFFR was to recover the economy (Baily, 2014). Throughout the year 2008 2009 period, the
economy of the USA was facing a negative economic and monetary condition that resulted in the
reduction as the Federal Reserve Bank policy for promoting the economic programs and
activities.
The year 2007 reported the highest effective rate for federal funds when the interest rate
5.26 percent. However, in the next year, the rate reduced to below 1 percent. Though, since the
drop below 1 percent in 2008, the rate is increasing slowly, enabling the economy for rebuilding
at a greater pace, along with not having issues with a bubble another time. In the middle of the
PLOTTING AND COMPARING FRED DATA
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year 2006 and 2008, the EFFR faced an uneven trend with severe falls and increases. The EFFR
from 2009 to 2016 did not increase by over 0.5 percent until after the year 2015. The loan rate
was reduced in the year 2008 and the year 2009. The rate after this remained constant from the
year 2009 to the year 2016. In July of 2006, the rate of bank prime loans was 8.25 percent that
was at its peak. At the beginning of 2006, there was a 7.26 percent rate of bank prime loan that
dropped in 2009 to 2015 to 3.25 percent (Baily, 2014). It indicates that there was a reduction in
the rate of bank primate loans for over 5 percent throughout the selected period of 10 years.
Therefore, the trends for the rate of bank prime loan indicates that there has been a reduction in
throughout the 10-year period. This reduction is basically seen as positive. It is for the reason
that higher rates of loan make it indefensible for clients to attain credit in the marketplaces.
Causal Relationship
It can be seen by assessing the two graphs that the EFFR has a positive and direct
relation. There was a 4.29 percent effective rate of federal funds interest in January 2009. This
rate has seen an increment to 5.26 percent. On the other hand, there was a rise in the rate of bank
prime loans to 9.5 percent from 8.5 percent showing a positive relationship between the two.
(Fred, 2016). In 2008 and 2009, the reaction of both of the interest rates was the same and both
of the rates of interest saw the lowest of all the time. In 2009, the EFFR saw a decline to 0.25
percent; while, in the same period, there was a reduction in the rate of bank prime loan to 3.2
percent (Wu, Xia, 2016). Both interest the rate of bank prime loan and EFFR remained the same
after 2009. It indicates a positive casual relation in the middle of two interest rates. The above
charts are also showing the same curve patterns for both of the interest rates.
References
PLOTTING AND COMPARING FRED DATA
Baily, M. N. (Ed.). (2014). Across the great divide: New perspectives on the financial crisis.
Hoover Institution Press.
Wu, J. C., & Xia, F. D. (2016). Measuring the macroeconomic impact of monetary policy at the
zero lower bound. Journal of Money, Credit and Banking, 48(2-3), 253-291.
Fred (2020). FRB Rates – discount, fed funds, primary credit. Fred. Retrieved from
https://fred.stlouisfed.org/categories/118?t=interest&ob=pv&od=desc.
FRED. (2020). Effective Federal Funds Rate. Retrieved from
https://fred.stlouisfed.org/series/FEDFUNDS#0.
FRED (2020). Bank Prime Loan Rate. Retrieved from
https://fred.stlouisfed.org/series/MPRIME.
FRED (2020). 30-Year Conventional Mortgage Rate (DISCONTINUED). Retrieved from
https://fred.stlouisfed.org/series/MORTG.
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