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    Recent Fed Actions

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    Objective:
    ?Describe the role of the Federal Reserve in the economy and in regulation of financial services.

    Task:
    In this part of the project, you need to collect data about recent monetary actions. In your report, you need to:
    ?Determine the decision-making process and conduct of monetary policy.
    ?Analyze how a recommended policy action will affect the economy.
    ?Collect data about recent monetary actions.
    ?Describe the Fed's actions during the past monetary policy cycle.
    ?Analyze the rationale for the Fed's actions.

    Deliverable and format:
    Two- to four-page report in a Microsoft Word document

    © BrainMass Inc. brainmass.com October 9, 2019, 10:50 pm ad1c9bdddf
    https://brainmass.com/business/foreign-exchange-rates/recent-fed-actions-234041

    Solution Preview

    Recent Fed Actions
    Objective:
    •Describe the role of the Federal Reserve in the economy and in regulation of financial services.

    Task:
    In this part of the project, you need to collect data about recent monetary actions. In your report, you need to:
    •Determine the decision-making process and conduct of monetary policy.
    The decision making process of the Federal Reserve in the form of the FOMC committee headed by Alan Greenspan is an autocratically collegial committee where the chairman more or less dictates the group's "consensus". Behind-the-scenes decision making is a closely kept secret. The changes which were recently made indicate that the FOMC is more of an individualist committee. The seven Governors of the Federal Reserve Board meet every quarter to meet and discuss the state of the economy. The Fed considers requests from the 12 regional banks for changes in the discount rate, the interest the central bank charges to make loans to commercial banks every week. Those meetings and discussions take place in secret and the number of banks that are petitioning for interest rates to be changed has always been tightly held. However, there is one overarching characteristic to Greenspan's stewardship of the Fed and it is his vigilance against the economy's inflation. He wants to control this by manipulating short-term interest rates. Every quarter, the Fed makes its decision by raising rates, lowering them, or leaving them alone. The Fed's decisions on short-term rates are part of a long and sometimes counter-intuitive chain reaction that involves its own periodic decisions, the volatile financial markets. The bond and stock markets know how the reasoning of the Fed goes. A hike in short-term interest rates is like murder for the markets: less people borrow money at high rates and the result is less money circulating in the economy, less investing and less purchasing, and is known as the 'tight' money policy, a weapon to keep inventories up, demand down, and it helps prevent inflation. Therefore, good economic news from the government is bad news for the bond and stock markets, and bad news for short-term investors. At each FOMC meeting, the following are the policy alternatives for implementation:
    * tighter monetary policy which is characterized by a slowdown in reserve and money supply growth and by rising interest rates
    * easier monetary policy, a speed-up in reserve and money supply growth and by declining interest rates
    * stable monetary policy, characterized by no change in the pace of reserve and money supply growth and no change in the level of interest rates.

    •Analyze how a recommended policy action will affect the economy.
    The Federal Reserve sets the nation's monetary policy for the purpose of promoting the objectives of maximum employment, stable prices, and moderate long-term interest rates. For policy makers, the challenge is that tensions among the goals can arise in the short run and that information about the economy becomes available only with a lag and may be imperfect. Implementing policy through raising or lowering interest rates is to affect people's and firms' demand for goods and services. The Fed has stayed out of the business of setting nominal rates for longer-term instruments and instead has allowed financial markets to determine longer-term interest rates. Long-term interest rates ...

    Solution Summary

    The solution discusses the decision-making process and conduct of monetary policy of the Federal Reserve. It also analyzes how a recommended policy action will affect the economy; describes the data about recent monetary actions; describes Fed's actions during the past monetary policy cycle and analyzes the rationale for Fed's actions. References included.

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