Transcript interest rate rises

The Federal Reserve
What is the Fed?

Central bank of the
United States
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Established in 1913
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Purpose is to ensure
a stable economy for
the nation
Roles & Responsibilities
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Conduct the nation’s monetary policy
Supervise and regulate banking institutions
Operate a nationwide payments system
Federal Reserve System Structure
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Board of Governors
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Federal Open Market
Committee
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12 Reserve Banks
Board of Governors
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Seven members
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Appointed by the president
Confirmed by the Senate
Serve staggered 14-year terms
Where is my Fed?
Fractional Reserve
Banks are required to keep
a fraction of their deposits
Legal reserveCoins/currency in
the vault
Reserve Requirement% of each deposit set
Aside as legal reserve
Federal Reserve Banks
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Operate a nationwide payments
system
Distribute the nation’s currency and
coin
Supervise and regulate member banks
and bank holding companies
Serve as banker for the U.S. Treasury
Contribute to monetary policymaking
through Bank presidents’ participation
in the Federal Open Markets
Committee.
Financial Services
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Supply currency and coin
to banking institutions
Clear more than one-third
of nation’s checks
Transfer funds
electronically (Automated
Clearing House (ACH),
Fedwire -- payment transaction not
subjected to any waiting period)
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Serve as bank for the U.S.
Treasury
Monetary Policy
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Policy changes affect
the nation’s supply of
money and credit.
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Actions have real
short- and long-term
effects on the economy.
Goals of Monetary Policy
Full
Employment
Stable Prices
Sustainable
Economic Growth
Federal Reserve’s Monetary Policy
How the Federal Reserve implements monetary policy:
Reserve
Requirement
Discount Rate
Open Market
Operations
Reserve Requirement
Reserve requirements are the amount of funds that a bank
establishment is obligated to retain against deposit liabilities.
The Board of Governors has exclusive authority over changes
in reserve requirements. Financial organizations must hold
reserves in the form of cash in a vault or deposits with Federal
Reserve Banks.
Current Reserve Requirements as of
January 23, 2014
• Less than $12.4 million have no minimum reserve requirement
• Between $12.4 million and $79.5 million must have a liquidity
ratio of 3%
• Exceeding $79.5 million must have a liquidity ratio of 10%
Discount Rate
The discount rate is the interest ratio charged to national banks and other
financial institutions on loans they receive from their district Federal Reserve
Bank's lending facility.
The Federal Reserve Banks offer three discount window plans to financial
organizations: primary, secondary, and periodic credit.
Each has its own interest rate and the loans are fully secured.
“Easy Money” - low interest rate (lots of money in circulation)
“Tight money policy”—restrict growth of money supply –interest rate rises
Effects of Low Interest Rates
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Generally, low interest rates
stimulate the economy because
there is more money available
to lend.
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Consumers buy cars and houses.
Businesses expand, buy
equipment, etc.
Why does the Fed lower
interest rates?
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If inflation is in check, lower
rates stimulate economic activity,
thus boosting economic growth.
Effects of High Interest Rates
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The Fed raises interest
rates as an effective way to
fight inflation.
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Inflation—a sustained rise in
the general price level; that
is, all prices are rising
together.
Consumers pay more to
borrow money, dampening
spending.
Businesses have difficulty
borrowing; unemployment
rises.
Recent Chairperson of the Fed
Questions/answers?
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What are the three main roles of the
Federal Reserve System?
Where is your Fed?
What four Financial Services are
provided by The Fed?
What are the goals of monetary policy?
What happens when the Fed lowers
interest rates? Raises interest rates?
What is inflation? Why should it
concern you?
U.S. hourly wage growth moderates in November
8:30 a.m. Dec. 4, 2015
WASHINGTON (MarketWatch) - Average hourly wages paid
to American workers rose 0.2% in November, a bit slower
compared to the prior month. The typical worker earned
$25.25 an hour, up 4 cents from October. From November
2014 to November 2015, hourly wages rose 2.3%, falling
from a 2.5% pace in October that raised hopes of rising
wages in the months ahead. Annualized increases in pay
had stuck to 2.2% or less through most of the recovery until
the bump in October. Still, economists expect the creation
of millions of new jobs and a falling unemployment rate to
put more upward pressure on wages in the near future. The
amount of time people worked each week fell a notch to
34.5 hours.
AMARILLO, TX - Consumers may start paying more
in interest rates as early as next Wednesday.
1.
The Federal Reserve will increase interest rates
next week for the first time in almost a decade.
2.
Now that the nation has recovered from the 2008
recession, the government has chosen now to start
slowly bringing interest rates back up.
3.
The first increase will be small, according to
Richard Ware, the president of Amarillo National
Bank.
4.
He estimates about a quarter of a point increase.
How would this affect consumers?
Bear Market (period in which investment prices fall, accompanied by
widespread pessimism. If the period of falling stock prices)
Vs
Bull Market (stocks trend goes up)