Monetary Policy
9 questions about interest rates you were too embarrassed to ask
Short videos on monetary policy produced by the Philadelphia Federal Reserve (scroll to "Chapter Four") A Day in the Life of the FOMC - a short explanation of the FOMC produced by the Fed In Plain English - Making Sense of the Federal Reserve - a short guided tour Introduction to the Fed The Structure of the Federal Reserve System The Federal Reserve System - Purposes and Functions Video: What is the Federal Open Market Committee Video: What is the Federal Funds Rate |
Do Now Questions
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monetary_policy_and_banking_regulation_ch_28.gslides | |
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Janet Yellen Comments on Monetary Policy - March 2016
Paragraph 1
1. What is the phrase we would use to describe “maximum employment”? It’s one of the Fed’s goals.
2. What is the phrase we would use to describe “price stability?” It’s another one of the Fed’s goals
Paragraph 2
3. Why did the FOMC raise the federal funds rate in December of 2016?
4. One of the reasons the FOMC increased the federal funds rate was expectation that what would happen? What did they think the causes would be?
5. In subsequent FOMC meetings what did the FOMC forecast would happen to the federal funds rate?
Paragraph 3
6. What is the purpose of Yellen’s speech?
7. Describe how firm a commitment Yellen makes to the Fed’s forecast. Explain your answer.
Paragraph 4
8. What are three (3) things Yellen cites as changes in global economic and financial developments since December?
9. What’s the Fed forecasting with regard to inflation and unemployment over the next 2-3 years?
RECENT DEVELOPMENTS AND THE BASELINE OUTLOOK
Paragraph 6
10. What evidence does she cite that the U.S. economy has been doing better in 2016? Be specific.
Paragraph 7
11. What evidence does she cite that the U.S. economy has not been doing well in 2016? Be specific.
12. Explain in your own words the impact that lower oil prices have had on the U.S. economy.
Paragraph 8
13. What is happening to foreign economic growth? What impact does she see that having on the U.S. economy?
Paragraph 9
14. After discussing the ups and downs of the U.S. economy, what’s her forecast?
15. Based on what she states in this paragraph, would you expect the FOMC to raise, lower or keep the federal funds rate the same? Explain your reasoning for your forecast.
Paragraph 10
16. Explain what she means by the “current real federal funds rate”
Paragraph 11
17. List the “headwinds” she expects to slow
18. If these headwinds slow, what does she predict will happen to the federal funds rate? Increase, decrease or remain the same?
Paragraph 12
19. What are two reasons she cites on why her forecast may change for the federal funds rate?
Paragraph 13
20. What is the rate of inflation now? What have been the causes for the rate of inflation to be what it is?
21. What’s her forecast for the rate of inflation in 2016? 2017? 2018?
RISKS TO THE OUTLOOK FOR REAL ECONOMIC ACTIVITY
Paragraph 15
22. What’s the problem with China’s economy? Why is it a question mark?
Paragraph 16
23. What are the positives and negatives to low oil prices to the economy? Who are winners and losers with low oil prices?
Paragraph 17
24. In what area did the economy improve more quickly than forecasted by either the Fed and private sources? Why does Yellen mention this? What point is she trying to make?
RISKS TO THE INFLATION OUTLOOK
Paragraph 18
25. What are two possibilities that could occur that would negatively impact the economy?
26. How would these possible scenarios impact inflation?
Paragraph 19
27. How is the ability for the Fed to control inflation rates different now than it was in the 1980s and 1990s and before?
Paragraph 20
28. What do the two sources here indicate the direction of inflation is going? Up, down or no change? Who are the two sources she cites?
Paragraph 21
29. Does Yellen agree with the assessments in paragraph 20?
30. What does she indicate might be the effect if forecasts from paragraph 20 are correct?
Paragraph 22
31. What might cause inflation to rise faster than expected?
32. After talking about inflation in paragraphs 18-22, what is Yellen’s forecast on inflation?
MONETARY POLICY IMPLICATION
Paragraph 24
33. What factors resulted in decision to keep federal funds rate unchanged in January and March?
Paragraph 25
34. Given where federal funds rates are set now, would the Fed have an easier time executing expansionary or contractionary monetary policy? What does she provide as the reason?
Paragraph 26
35. What are the other tools the Fed has available that she mentions here besides the federal funds rate?
Paragraph 27
36. Is monetary policy currently one of loose or tight money?
Paragraph 29
37. Does she favor or oppose sharing information about what the Fed is thinking regarding monetary policy?
1. What is the phrase we would use to describe “maximum employment”? It’s one of the Fed’s goals.
2. What is the phrase we would use to describe “price stability?” It’s another one of the Fed’s goals
Paragraph 2
3. Why did the FOMC raise the federal funds rate in December of 2016?
4. One of the reasons the FOMC increased the federal funds rate was expectation that what would happen? What did they think the causes would be?
5. In subsequent FOMC meetings what did the FOMC forecast would happen to the federal funds rate?
Paragraph 3
6. What is the purpose of Yellen’s speech?
7. Describe how firm a commitment Yellen makes to the Fed’s forecast. Explain your answer.
Paragraph 4
8. What are three (3) things Yellen cites as changes in global economic and financial developments since December?
9. What’s the Fed forecasting with regard to inflation and unemployment over the next 2-3 years?
RECENT DEVELOPMENTS AND THE BASELINE OUTLOOK
Paragraph 6
10. What evidence does she cite that the U.S. economy has been doing better in 2016? Be specific.
Paragraph 7
11. What evidence does she cite that the U.S. economy has not been doing well in 2016? Be specific.
12. Explain in your own words the impact that lower oil prices have had on the U.S. economy.
Paragraph 8
13. What is happening to foreign economic growth? What impact does she see that having on the U.S. economy?
Paragraph 9
14. After discussing the ups and downs of the U.S. economy, what’s her forecast?
15. Based on what she states in this paragraph, would you expect the FOMC to raise, lower or keep the federal funds rate the same? Explain your reasoning for your forecast.
Paragraph 10
16. Explain what she means by the “current real federal funds rate”
Paragraph 11
17. List the “headwinds” she expects to slow
18. If these headwinds slow, what does she predict will happen to the federal funds rate? Increase, decrease or remain the same?
Paragraph 12
19. What are two reasons she cites on why her forecast may change for the federal funds rate?
Paragraph 13
20. What is the rate of inflation now? What have been the causes for the rate of inflation to be what it is?
21. What’s her forecast for the rate of inflation in 2016? 2017? 2018?
RISKS TO THE OUTLOOK FOR REAL ECONOMIC ACTIVITY
Paragraph 15
22. What’s the problem with China’s economy? Why is it a question mark?
Paragraph 16
23. What are the positives and negatives to low oil prices to the economy? Who are winners and losers with low oil prices?
Paragraph 17
24. In what area did the economy improve more quickly than forecasted by either the Fed and private sources? Why does Yellen mention this? What point is she trying to make?
RISKS TO THE INFLATION OUTLOOK
Paragraph 18
25. What are two possibilities that could occur that would negatively impact the economy?
26. How would these possible scenarios impact inflation?
Paragraph 19
27. How is the ability for the Fed to control inflation rates different now than it was in the 1980s and 1990s and before?
Paragraph 20
28. What do the two sources here indicate the direction of inflation is going? Up, down or no change? Who are the two sources she cites?
Paragraph 21
29. Does Yellen agree with the assessments in paragraph 20?
30. What does she indicate might be the effect if forecasts from paragraph 20 are correct?
Paragraph 22
31. What might cause inflation to rise faster than expected?
32. After talking about inflation in paragraphs 18-22, what is Yellen’s forecast on inflation?
MONETARY POLICY IMPLICATION
Paragraph 24
33. What factors resulted in decision to keep federal funds rate unchanged in January and March?
Paragraph 25
34. Given where federal funds rates are set now, would the Fed have an easier time executing expansionary or contractionary monetary policy? What does she provide as the reason?
Paragraph 26
35. What are the other tools the Fed has available that she mentions here besides the federal funds rate?
Paragraph 27
36. Is monetary policy currently one of loose or tight money?
Paragraph 29
37. Does she favor or oppose sharing information about what the Fed is thinking regarding monetary policy?