FOMC, Rates and the Economy

11.05.2016 · Posted in Uncategorized

In the world of finance, we look at a variety of data from the unemployment rate to consumer confidence.  However, one piece of policy that takes these factors into consideration would be the target range for the federal funds rate. The federal funds rate is defined as the rate at which banks lend from each other overnight and is used as a guideline for the health of the economy, as well as an indicator of the direction the economy is heading. The institution that controls this rate is known as the Federal Reserve, this private entity is the central bank for the United States and has the duty of controlling inflation and achieving maximum employment. The way it achieves the goals set by the United States government is through monetary policy. The Fed has two choices of policy, either expansionary policy which is when they lower the fed funds rate, or tightening policy in which case they raise the fed funds rate. This is relevant because the Federal Open Market Committee (FOMC) released their policy going forward on Nov 2, 2016., their decision was to keep the federal funds rate at ¼ to ½ percent, which was unchanged from their previous meeting in late September. After the conclusion of each meeting, the FOMC releases a statement in which they asses the health of the economy and any future expectations they have. One notable quote that appeared in the statement was, “The Stance of monetary policy remains accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.” The main theme throughout this released statement was to reveal that although the case for a rate hike has continued to grow, due to recent strong economic data, the FOMC and the Federal Reserve would like to wait for further evidence before making a change. The next meeting of the FOMC is scheduled to end on December 14th, 2016 and then we will know if they will decide to keep rates constant, or with more evidence, they will decide to raise them.

Leave a Reply