Wednesday, May 2, 2018

FED’s Monetary Policy Meeting

Michael Miosi
AP Econ Blog
Mrs. Straub
5/1/2018

FED’s Monetary Policy Meeting
On 5/2/2018 the FED will be holding one of its 8 yearly meetings to discuss how to move forward with the economy in terms of monetary policy and what they should change before the next meeting which occurs in June. Your average American would say the small changes they may make are irrelevant and in turn just ignore the fact that it occurs, however, as you will learn by reading there really is a lot to it. In this meeting, the FED can lower, raise or maintain the federal funds rate based on how they see fit.The FED prefers keeping the Federal Funds Rate at between 2 and 5 percent as this indicates a healthy economy. In this range, the GDP grows while also keeping unemployment where it should be naturally, at around 5% as well as keeping inflation rates at or below the target of 2%.So as you can tell, they historically play changes pretty close to the chest, however, there have been times in the past that they have decided the necessary move is a drastic change. For example, in 1979, to combat double-digit inflation rates the federal funds rate was raised 20% leaving it at an all-time high. On the other end of the spectrum, the lowest mark ever was in 2008 to combat recession as the federal funds rate dropped all the way down to 0.25%. While of course since America is currently neither in a recession or experiencing extreme inflation, we can expect much smaller changes than that in this months meeting.

The impact of this meeting reaches wide as it hasn’t even happened yet and we have already seen change stem from it. Because economists believe the FED is going to be raising interest rates, investors have all been recently on a scramble to invest in the U.S. dollar as to benefit from this increase. Do to this the U.S. dollar has surged up in worth, gaining half a percent on the rate between it and the euro as well as reaching key levels on the Australian dollar, Swedish crown, Swiss franc, British pound and other emerging currencies. Now, I’m not an economist, but the topics regarding this meeting that I have discussed as well as the many others I’m sure someone more qualified could tell you, I believe it is pretty clear these meetings are important and carry a lot of weight.




Works Cited
Amadeo, Kimberly. “Highest and Lowest Interest Rates and Why They Changed.” The Balance, www.thebalance.com/fed-funds-rate-history-highs-lows-3306135.

CNBC. “FOREX-Dollar Roars into Positive Territory for 2018 before Fed Meeting.” CNBC, CNBC, 1 May 2018, www.cnbc.com/2018/05/01/reuters-america-forex-dollar-roars-into-positive-territory-for-2018-before-fed-meeting.html.

10 comments:

  1. Great article. It really got me thinking.

    It's absolutely wild to think that there was a time when the federal funds rate was 20% or .25%. I'm sure people weren't too happy when the federal funds rate was so high, because that would trickle down onto the consumers who wanted loans, and it would really make getting loans more difficult. On the other hand, the economic growth experienced at the end of the 2008 recession was pretty neat too. It takes a lot of guts to make the federal funds rate so high or so low, so I'd like to say good job to the FED.

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    Replies
    1. That is a good point that the high interest rate would make loans more difficult, however it also comes with its benefits as you would receive a much higher interest rate on your savings accounts. Increasing your total wealth and allowing you to take out a loan later further down the line.

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  2. Your analyzation of this upcoming meeting and its potential risk/growth factors was well done. Changing the federal funds rate is not something that is done often, as least not drastically, simply because a small, miniscule change can have a larger impact than initially anticipated. However, that major drop during the Great Recession seems very impactful, even though it was only a short decade ago. I agree with you; I think that this meeting is crucial in determining future interest rates and/or potential interest rate changes. Overall, changing the federal funds rate can impact the economy and it may be more than anticipated.

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  3. This article really relates to what were currently learning. These meetings seem to have very big implications on what the FED is going to do with the federal funds rates and interest rates. I think the federal funds rate is going to change and we should be ready for the affects that it will have.

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  4. Considering the current federal funds rate is 1.75, so a 20% would be way to hard to borrow money. Raising the rate lowers the supply of available money, which increases the short-term interest rates and helps keep inflation in check. Lowering the rate has the opposite effect, which would bringing short-term interest rates down, which is why the FED needs to have a meeting to compromise. I'm curious to see what the FED comes up with, but I'm sure they won't be as drastic as they did in 1979 or 2008.

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  5. I agree with Jaden, it's insane to think that the federal funds rate was at .25%. I also think it's interesting it keeps increasing each year by .25%. I'm sure people are a lot happier now than then because our unemployment rate constantly decreases and the inflation rate is stable. I think with the meeting today, they have a lot to improve on still and could make this economy even better and I agree that this meeting is very important to our future and future interest rates/rate changes. It's even more important considering the rates aren't changed very often and it will have such a large impact our economy and possibly even more than we anticipate. Hopefully this meeting will have a good solution on changing our future.

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  6. I was one of those individuals who, as you described in the beginning of your article, simply did not care about this meeting at all. I thought that it had so significance over my life and in the end, whatever happens in that meeting would never affect me. However, after reading this article, I found that I was so wrong. It was interesting to see how the US dollar appreciated in value compared to the other currencies around the world such as the Euro. It made me think about a vacation to Europe, and how much more affordable that becomes due to the appreciation of the US dollar. All in all, I thought your article was very well written and it gave me Insight into a meeting I thought had no effect over the course of my life.

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  7. I also find this post to be very informative and interesting. I particularly like that you connected the Federal Reserve’s actions with the foreign exchange market. As you mentioned, since the Fed is currently targeting a higher federal funds rate, foreigners are looking to invest financially in the United States. This increases the demand for the US dollar which will cause the US dollar to appreciate relative to other currencies. To take it a step further, the appreciation of the US dollar will likely lead to an increased trade deficit as imports will increase and exports will decrease for the United States.

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  8. I found this article to be quite intriguing and was impressed by the material. I never really knew much about the FED, but seeing how they at least work with the economy and handle situations was good to learn about. After studying Switzerland's economy, I soon realized too that the U.S. Dollar is still valuable even if it is worth less than a Swiss Franc. Hopefully our economy and the FED will have our country in a place where the U.S. Dollar is the most valuable currency in the world, but we won't be in an economy that may burst its bubble.

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