Question

1. 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.
   1. Which articles did you read? You can write a citation or embed a link.
   2. 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 which they want the federal funds rate to be.) At the most recent meeting, what did the FOMC decide to do regarding their target range for the federal funds rate? What is the source for the BLS’ employment change data?
   3. Using your own words—that is, without copying the text of any source you have found—write a paragraph about why the FOMC chose to make the change you described in part b.

its online, google first sentencce

Answer 1

a. https://www.bnnbloomberg.ca/the-case-for-more-fed-rate-cuts-is-no-longer-strong-1.1318603

https://www.reuters.com/article/us-usa-fed/fed-cuts-rates-on-7-3-vote-gives-mixed-signals-on-next-move-idUSKBN1W32H7?il=0

b. The FOMC in recent meeting on september 18 had reduced the Federal fund rate by 25 basis points to now 2%. the FOMC decides to change rate only to promote maximum employement, stable prices(inflation), and moderate long term interest rates. it do so by changing interest rates or by performing Open Market Operations. when inflation starts to deviate from 2 % target set by FOMC(Federal Open Market Committee), the central bank changes interest rates to maintain stable prices. if inflation falls below 2% it will decrease interest rates and if it rises above 2% it will raise interest rates.

in recent meeting that happend on 18 September 2019, the Federal Reserve lowered the interest rates by 25 basis points. the central bank cited reason for lowering the rates as -

1. the market based inflation measures remain muted.

2. Business investment & Exports have weakend.

3. the rate cut was designed to provide "insurace against ongoing risks"

4. the development in global economic outlook(trade tensions & weak global growth) remains to the downside with risk pertaining to domestic outlook.

The unemployment rate in US is 3.7% in Aug 2019. For more Employment data you can refer to - https://tradingeconomics.com/united-states/unemployment-rate

c. There are certain critics to FOMC decision to cut rates, as core inflation data is already near 2% and labour market is still tight. The core inflation data(which excludes volatile items like food and energy prices) has reaced 2.4% in Aug which is above Fed inflation target range, which still many believes is enough for FOMC to maintain rates and not cut it. the Labour market is tight with wage growth is positive in real terms and stand now around 5.2% in july 2019, ie 2.16% positive if compare to core inflation. the Uneployment level is 3.7% in August, still that too is tight(tight means demand for labour is higher than supply of labour)

But as a global reserve currency, the Fed has to see broder picture and excess tightening by Federal Reserve will result in shortage of Dollars in the world market. Dollar is still highly used in more than 80% global Transactions. when global economy is not doing well and at the same time Federal Reserve is tightening, the shortage of dollar and capital flight from other economies can pose systemantic risk in world economies. So, one can say that reducing rates and to maintain enough liquidity of dollar in world markets gives enough reason for Federal Reserve to cut rates.