(2) Read the FOMC monetary policy decisions (press releases) dated March 16, 201
ID: 1202973 • Letter: #
Question
(2) Read the FOMC monetary policy decisions (press releases) dated March 16, 2016 and answer the following.
a. Identify the FOMC’s thinking on the variables listed below. Be sure to identify the factors driving their thinking.
1 Fiscal policy
2 Inflation and inflationary expectation
3 Economic activity (GDP)
4 The risk to the outlook for economic activity and the labor market
5 Outlook for the labor market and economic activity
6 Target range for the Federal Funds Rate
7 The securities purchases
Explanation / Answer
The FOMC Monetary Policy decisions (press releases) dated March 16,2016
1 Fiscal Policy
The economic activity has been expanding at a moderate rate.The Federal Open Market Committee (FOMC) review the economic outlook to determine the current and projected path of the fiscal policy that can determine the macroeconomic variables such as Gross Domestic Product, Employment, and Inflation. The FOMC press releases explain that the Committee want to foster maximum employment and price stability.
2 Inflation and inflationary expectation
Inflation has picked up in recent month. But the increase in inflation is not daunting as it is still below the long-term objective of the Committee which is to keep inflation at 2%. The FOMC has a target for the inflation rate of 2%. A higher inflation rate is costly in economic terms as compared to a lower one.
3 Economic activity (GDP)
The Economic activity is expanding at a moderate pace even though this could have been hampered by the global economic and financial developments of the recent months. Gross Domestic Product is a measure of economic progress. An expanding economic activity means a positive economic progress. An economic progress in the right direction.
4 The risk to the outlook for economic activity and the labor market
The committee seeks to foster maximum employment and price stability. The economic activity and the labour market have been strengthened. The global economic and financial development pose risk to the outlook for the economic activity and the labour market.
5 Outlook for the labour market and economic activity
The FOMC seeks to encourage maximum employment and price stability. The economic activity will expand at a moderate rate while the labour market indicators will continue to strengthen. The labour market will further improve.
6 Target range for the Federal Funds Rate
The target rate for the Federal Funds Rate is in the range 1/4 to 1/2 percent. The Federal Funds rate is the rate at which depository institution lends money to other depository institution. The FOMC since 2008 have maintained a Federal Funds Rate range of 0 to 1/4 percent.
7 The securities purchases
The committee has maintained its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. The FOMC would be rolling over maturing Treasury securities at auction. The FOMC policy of keeping the FOMC's holdings of longer-term securities at sizable levels will help maintain accommodative financial conditions.
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