{"id":6777,"date":"2024-10-10T12:32:35","date_gmt":"2024-10-10T17:32:35","guid":{"rendered":"https:\/\/schenkelberg.investments\/?p=6777"},"modified":"2024-10-10T12:32:38","modified_gmt":"2024-10-10T17:32:38","slug":"federal-reserve-action-and-what-it-means","status":"publish","type":"post","link":"https:\/\/schenkelberg.investments\/?p=6777","title":{"rendered":"Federal Reserve Action And What It Means<\/strong>"},"content":{"rendered":"\n

<\/p>\n\n\n\n

The Federal Open Market Committee (FOMC) is the policymaking body of the Federal Reserve System. This committee lowered its fed funds rate by 50 basis points, or 0.50%, on September 18, 2024 to a range of 4.75% to 5.0%. The fed funds rate is the rate at which commercial banks borrow and lend their excess reserves to each other overnight. By lowering the rate, banks feel freer to loan funds to customers and borrow overnight because it is a lower rate. <\/p>\n\n\n\n

The U.S. Federal Reserve has two mandates that were designated by congress in The Federal Reserve Act of 1977. The two mandates are maximum employment<\/strong> and price stability<\/strong>.<\/p>\n\n\n\n

. Maximum Employment. <\/strong>The desired unemployment level that prevails in normal economic conditions. Data from The St. Louis Fed gives an estimated target of 4.3%.<\/p>\n\n\n\n

. Price Stability<\/strong>. The ability to keep inflation at a reasonably stable level and moderate long-term interest rates. In January 2012, the Board of Governors for the FOMC began targeting inflation at 2%.<\/p>\n\n\n\n

The recent drop in the target interest rate comes after a longer period of rising rates. Rising rates were designed to bring inflation closer to its 2.0% target from its peak of almost 9% by limiting the flow of funds in the economy, thus restricting growth that can prompt inflation. The chart below outlines the change in the target rate since 1993, as well as forecasts for where the target rate may be expected to go.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n\n\n

The Federal Funds rate is just one way the Federal Reserve seeks to target their mandates. The other tool they typically use is their balance sheet, or buying and selling income- based assets on the open market. From 2020 to 2022, the Federal Reserve was purchasing treasuries, mortgage- backed securities and loans on the open market. This creates a flow of cash into the market while lowering the supply of income products. The flow of cash is designed to spur additional lending of funds. By increasing the supply of cash in the market, additional economic growth may be spurred. A chart illustrating the flow of these funds is below.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n\n\n

The FOMC recently lowered interest rates; however, the balance sheet chart shows they have been lowering their ownership of income-based products since 2022. This decrease in ownership can be attributed to both letting assets mature without buying more and selling at a moderate pace. By decreasing the purchase of these assets, the FOMC has been decreasing the flow of funds into the market, thus lessening growth from flow of funds.<\/p>\n\n\n\n

Despite this lower level of funds flowing into the market, unemployment has remained at a reasonable level of approximately 4.4% coming into the fourth quarter. Additionally, inflation has declined substantially with headline PCE inflation at 2.3%. Economic growth has also remained reasonable with GDP expected to grow 2.0% in 2024. A \u201csoft landing\u201d is the goal. If unemployment, inflation and GDP growth rates can remain close to these levels the next couple of years, a soft landing could be achieved. The fear is that as interest rates decline growth reaccelerates and inflation rises again. Or, on the flip side, economic growth is hampered by rates that were too high for too long. The stock market is currently optimistic in a soft landing. I believe this is a reasonable expectation.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Federal Open Market Committee (FOMC) is the policymaking body of the Federal Reserve System. This committee lowered its fed funds rate by 50 basis points, or 0.50%, on September 18, 2024 to a range of 4.75% to 5.0%. The fed funds rate is the rate at which commercial banks borrow and lend their excess […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-6777","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p7kXxe-1Lj","jetpack-related-posts":[{"id":6316,"url":"https:\/\/schenkelberg.investments\/?p=6316","url_meta":{"origin":6777,"position":0},"title":"Fed Relief Rally","author":"J.J. 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