why does the stock market often respond after a FOMC meeting when there are no announced changes in the target Fed funds rate? Do the bond markets respond also? Would you expect them to respond similarly? Why or why not?
The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. (https://www.federalreserve.gov/monetarypolicy/fomc.htm)
Even though it takes atleast 12 months for any increase or reduction in the interest rates upon the economy, the stock and bond market's response to the change is very quick, almost immediate. (https://www.investopedia.com/investing/how-interest-rates-affect-stock-market/)
It is the Federal Funds Rate that moves the markets. If the rate increases, the cost of funds that the banks can borrow from Federal Reserve increases. It leads to increase in lending rates by banks. Thus, the borrowing cost of everybody (industries as well as consumers) increases. It leads to reduction in profit margins of producers and/ or increase in selling price of goods and services and increase in household expenses.
The Federal Reserve uses the Federal Funds Rate as a tool to control money supply and for other goals mentioned above.
The stock market reacts after a FOMC meeting either by dramatic ups or downs in prices OR continuing on its own pace, as it was going before the meeting. It's dramatic responses occur when the expected stance and/ or the increase/ decrease in interest rate is different from the FOMC meeting's outcome.
THE BOND PRICES and FEDERAL FUND RATE
Thus, the bond market reacts in a similar way, but in opposite directions as compared to the stock market. While the increase in rate causes stock prices to fall, it causes the prices of high yielding bonds to increase due to increased demand. The prices of bonds with low interest rate also reduces as their demand reduces, upto the point where yield matches the increased Rate.
why does the stock market often respond after a FOMC meeting when there are no announced...
why does the stock market often respond after a FOMC meeting when there are no announced changes in the target Fed funds rate? Do the bond markets respond also? Would you expect them to respond similarly? Why or why not?
Assigment 4 13,4,6,8 1) What is the Federal Open Market Committee (FOMC)? What does it do? Who is on this committee? 2) What does it mean when we say the FED is a banker's bank? 3) Find the current FED funds target rate. Explain what it is? 4) Using T-Accounts, show how open market operations of the FED adjust banking balance sheets. 5) What does it mean to borrow at the discount window? Why does this possibility exist? 6) Much...
The Federal Open market Committee (FOMC) met on September 17-18. Read at least two articles—from two different sources--about the outcome of the FOMC meeting and answer the following questions. Which articles did you read? You can write a citation or embed a link. When the FOMC decides to “change interest rates,” what they are really doing is changing their target range for the federal funds rate, sometimes called the Fed’s benchmark rate. (That is, they are changing the range in...
8. Federal funds rate targeting Aa Aa In conducting monetary policy, the Federal Open Market Committee (FOMC) targets a Federal funds rate and the Federal Reserve Bank of New York uses open-market operations to achieve and maintain the target rate. Suppose that the following graph shows the demand for Federal funds. Use the orange line (square symbols) to plot the supply of Federal funds (also called "the supply of excess reserves") when the FOMC targets a Federal funds rate of...
Suppose you are a member of the FOMC and the U.S. economy is entering a recession. Write a directive (at least 4 typed pages, including your sources) to the committee about the conduct of monetary policy over the next two months. At the meeting, the committee will respond to changes in economic prospects as needed to support the attainment of its objectives. Your directive may address a target for the GDP growth rate, the federal funds rate, and the rate...
please help thank you so much
How might you respond in a hypothetical FOMC meeting? Answer the questions below to determine your policy leanings. 1 Would you be more concerned with your cousin losing his/her job or prices increasing faster than your income? Cousin losing job Equally concernedPrices rising Do you agree or disagree with this statement: "Markets do the best job at allocating resources to maximize economic potential and financial market outcomes. Government policy or regulation inhibits this." 2...
It is often said that investors like "certainty". When the stock market wobbles, commentators often blame rising levels of uncertainty. Using concepts elaborated in chapter 6, discuss why you think markets like certainty
Federal Reserve Chairman Jerome Powell announced the central bank will lower interest rates for the first time since the Great Recession in 2008 to help stave off the possibility of an economic downturn. Federal Reserve Chairman Jerome Powell announced the Fed will lower its target federal funds interest rate by 25 basis points to a range of 2.0% to 2.25%. Powell stated the Fed still viewed the outlook for the U.S. economy as favorable, but the interest rate cut is...
TF 1. Capital market assets are long term debt. T F 2. If the demand for bonds rises, then so does the supply of bonds. T F 3. Financial markets are required for interest rates to exist. IF 4. All banks are always illiquid. T F 5. Included on the FOMC of the FED is the Comptroller of the Currency. TF 6. The demand for loanable funds is supply of bonds, because generally to get someone will lend you money...
After watching the Section 5.3 Review and Section 6.2 Review videos, respond to the questions below. Gas prices fluctuate often and in both directions. In your initial post, respond to the following: How responsive do you think consumers will be to the price change when these fluctuations occur due to changes in supply? Why? Use the various determinants of elasticity to explain your answer. How does the price elasticity of demand for gasoline impact the effectiveness of taxes on gasoline...