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Macroeconomic Forecasting
Federal Reserve Policy
The Federal Reserve through open market operations can be a net seller or buyer of U.S. Treasuries. As a net seller of bonds the Fed is enacting policy which will tighten the money supply taking money out of circulation. The policy is conducted as follows: The Federal Reserve Open Market Committee instructs the trading desk at the New York Federal Reserve Bank to sell a specified amount of their holdings of U.S. Treasuries. In doing so, investors will purchase these bonds from the FED through their currency or bank deposits, thereby reducing the amount of dollars held by the investor. The transaction reduces the money supply by a reduction in currency held by the public and reduced bank deposits. Consequently, banks will have fewer deposits and as a result "find themselves with a smaller quantity of...
In response, banks reduce the amount of lending, and the process of money creation reverses itself" (Mankiw, G. 2004).
Banks earn a rate of return on their reserve holdings by lending them overnight to other banks in need of reserves to meet requirements; this rate is known as the Fed Funds Rate. Succinctly then "Fed open market operations change the supply of reserve balances in the system, and by affecting the supply of balances, the Fed can create upward or downward pressure on the fed funds rate" (Federal Reserve Bank of New York. N.D.). In the case of the Fed as a net seller of bonds the fed funds rate will be increased. As a result other interest rates: prime rate, commercial paper rate, and bank lending rates tend to move in step or in expectation of the fed funds rate. The increase in interest rates coupled with reduced bank lending…
The 'Great Recession' prompted the Fed to take unusual steps including the initiation of short-term liquidity funding programs for financial institutions, credit markets, and investors including: "the Term Asset-Backed Securities Loan Facility (TALF), the Money Market Investor Funding Facility (MMIFF), and the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF)" (Board of Governors of the Federal Reserve. N.D.). These facilities provided funding and liquidity to entities during and after the crisis which provided much needed stability. Perhaps the most unique step undertaken was the use of 'quantitative easing' designed to stimulate the economy. Because the fed funds rate had already been reduced to near zero, and with other interest rates at historic lows, the Fed expanded their balance sheet by buying over a trillion dollars of treasuries and mortgage backed securities. A second round of purchases known as QE2 began in the third and fourth quarter of 2010. The ostensible purpose of 'quantitative easing' is to bolster asset prices, increase the money supply, and reduce borrowing costs through lower interest rates, thereby growing the economy.
Economic Forecasts
Economic forecasts tend to be as varied as they are ubiquitous however, coming out of the recent recession there
If the Fed is more concerned with the core CPI, then rates are unlikely to be raised this year. An increase in rates would slow the economy down. However, if total CPI increases at a faster rate, this could force the Fed to raise rates slightly. On the whole, however, the data does not support DESA's pessimism about the state of the American economy. The Federal Reserve is currently using
The distributor would as such be able to identify the new needs of the customers and the suppliers, and will be able to serve them in quick and efficient manner, by delivering results before the competition even becomes aware of the existence of the changes incurred. In other words, competitive advantages would be created (Royer, 2005). Within the longer term, a suggestion is made in the combination of qualitative
Macroeconomics One set of macroeconomic projections comes from the Congressional Budget Office (CBO). The CBO forecasts two years out specifically and uses projected annual averages for the subsequent four and five-year periods. The CBO is projecting real GDP growth of 3.1% in 2011, 2.8% in 2012, an average of 3.4% in 2013-16 and an average of 2.4% from 2017-21. The CBO's projection for the ten-year Treasury note is 3.4% in 2011,
remedy for the U.S. economy as the country has started to recover from the shock of September 11. Though the tragedy of September has drastically effected the economic growth of the country but the forces of recovery will soon lift the economy out of the recession. However, this turnaround is going to go a long way. The general opinion about the economy of the United States is that the
While this strategy is effective in some situations, the use of bond markets by an investor requires the development of an effective strategy that will help him/her to achieve a specific financial objective. For an investor seeking to maximize the profit-generating aspects of bonds, the most effective strategy is a passive buy-and-hold bond strategy. As the name suggests, it involves buying individual bonds and holding them until maturity. The
cell phone market is global in scope, with manufacturers and distributors in most of the developed world. However, there are five top-tier firms that clearly dominate the market: Nokia, Samsung, LG, Motorola and Sony Ericcson. These five firms account for about 70% of the global business. Nokia is in Finland, Motorola in the United States, the rest are Asian. Second tear firms are Apple, Research in Motion, and HTC.