Match, compare and contrast recent statements from the Chair of the FED, from the Beige Book, from the FED Directive, and from the FED Minutes to provide insight/evidence of Open Market Operations and the intentions of OMOs. Use Statements from the different sources from around the same time period, so that the statements contain comparable information. Your intention is to associate this analysis with its impact on the financial institution you have chosen to investigate and the broad financial services industry.
WEB FED ASSSIGNMENT
FED WATCH: Monetary Policy Analysis
The part and parcel of monetary policy is FOMC or Federal Open Market Committee. It comprises of twelve people from the Board of Governors of the Federal Reserve and Reserve Bank’s five Presidents. There are 8 meetings of the committee that are held annually, and if required, additional meetings are held.
FOMC: Federal Open Market Committee
The information shows that the person who is the permanent member of the committee is the President of The New York Reserve Bank, and he remains permanent all through. Chicago and Cleveland changes alternatively and the three rotating Presidents are from Philadelphia, Dallas, and Minneapolis. The voting rights are enjoyed by Cleveland, New York, St. Louis, Boston and Kansas City.
The FOMC Statement
The statement of FOMC showed that the rate of inflation was steady, and it was less than 2% which was their target. There was slowness in the labor market as more people continued to get engaged in the economic activities. There was a decline in the level of unemployment and the job gains. The level of inflation was such because the energy and the non-energy import prices declined. On observing this, the Committee pushed for price stability and gaining maximum employment. The committee believed that if the labor markets are strengthened, with the adjustment of monetary policies, then the economic activity is expanded, feeding the labor market.
The information is deduced, and it is decided by the committee to maintain one-fourth to half of the percent of the rate of funds.
The economic conditions will be assessed by the Committee so that the size and the time of adjustment of the rate of reserve can be determined. Other information will be considered for improvements in the finances, the condition of the market of labor and the inflation pressures. For restoring the margin of inflation to 2%, the developments will be monitored by the committee for reaching the goal of inflation.
Meeting Minutes of FOMC
In the recent discussion, there was a discussion about the financial stability and the monetary policies. A presentation was made in which the differences in the two subjects were highlighted, and it was shown that how the monetary policies react to the financial imbalances. There was a note drafted that mentioned the ability of financial markets to take the shocks as a result of the strong economic policies that were implemented at the time of financial crisis. It was also discovered by the Committee that the use of monetary policies might not be very beneficial and may be outweighed by the cost of deviating from the price stability, which is the usual method.
There were discussions on the matter of financial markets and OMO. The information came to the Committee from the System Open Market Account manager about the developments of the financial markets. Then there were other reports too that informed about the OMO that was carried out since March'15-March'16.
The Federal Reserve Rates that were targeted were predicted to be between 0.25% to 0.50%, and the actual were 0.38%. When the Committee voted, it had no intention of increasing the rate which was set. There has not been very much difference in the discount rate over the years. The reserve ratio highlighted in the Federal Reserve Board regulation is applied to the Reserves liabilities to get the dollar amount of Reserve requirement. Current reserve figures stand at, 3% for liabilities between 15.2 million to 110.2 million dollars and 10% for liabilities with a figure over 110.2 million dollars.
It was pointed out by the Chairman that price stability was required, and it should be included in the agenda of the Committee. It also said that for gaining maximum employment, there is a requirement of moderate long-term rate of interest. The main components of business costs include labor costs and the prices of energy, and other raw materials are also considered in this.
Beige Book Report
It was mentioned in the reports that the economic activities grew steadily from July to August. Retail activity particularly grew, and it varied in terms of strength of growth. There was a rise in the markets of real estate and all the districts improved their home prices, along with sales and prices of house construction.
The reports concluded that there was an increase in the retail spending within the districts of New York and San Francisco that reported better sales.
Resolving the factors that affected the balances of Reserves
It can be seen from the information that there are many activities in which FED is involved. The agreements on reverse repurchases declined and dropped to almost half of the figures. This shows that not much of the securities were sold by FED for a higher price in the future which it was trying to reduce. Therefore, this increased the funds in Reserve Bank as the money from it got absorbed.
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FRB: Monetary Policy. (2016). Federalreserve.gov. Retrieved 27 June 2016, from http://www.federalreserve.gov/monetarypolicy/default.htm