Question

Research and review trends in inflation (CPI), interest rates (short and long term), GDP and employment over the last year. Then read the latest speech by the Federal Reserve and answer the following short essay questions. While this is not a paper, you must still properly cite your answer and write in full sentences.

1. Describe and explain the cause of any inflation (or lack of) over the last year.
2. Describe and explain the trends in unemployment over the last year.
3. Report on the current interest rates. Address the fed funds rate, the ten-year treasury rate and the 30 year treasury rate. Explain how and why they have changed over the last year.
4. Describe and explain the shape of the yield curve. What does the curve tell us about the anticipated future of the economy?
5. What is the Federal Reserve's current view of the general state of the economy? Of employment? Of inflation?
6. What is the current primary concern of the Chairman of the Federal Reserve? How is he addressing that concern?
7. How would you advise the Fed to set interest rates next month? Explain your answer.

Answer 1

Spike in inflation last year was accustomed due to higher energy prices of crude oil and higher demand and spending which crossed inflation in CPi terms to 2.3percent.
The unemployment in 2019 has remained at 3.93 percent to 3.78 percent range and has decreased gradually due to higher capital expenditure by corporates after drastically cut downs of taxes which caused headroom inflation to spike and shoot.
As of 2019 end, the Fed funds rate remains at 1.7 percent and 10 year treasury yields at 1.8 percent and 30 year treasury yields at 2.07 percent. The chnages are exacerbated by anticipation of recession such that returns are higher in near term as risk is higher amd the economy looks to revive post 10 years which has caused yields to dip for 10 year and 30 years.
The yield curve has inverted which is strong indicator of recession as probability in near term as 5 year treasury yields are higher than 10 year and 30 years and hence long term view is stable but short term indicates slowdown.
Federal funds rate remains constant in anticipation of prevention of further inflation and st same time balancing counter effects of trade war so rise in funds rate can bring slowdown sooner however cut in rates can boost inflation levels and hence Fed maintain neutral stance.
Current primary concern of The US Fed is to monitor inflation as unemployment has been projected at 3.5 per cent however the negative implications of US china trade war and global uncertainty makes the Fed dovish but spiking inflation causes it to be hawkish amd thus is in tradeoff situation.
The Fed must wtch and react next month and look to keep interest rates constant and analyse aftermath as US china trade war has deescalated along with US Iraq war and sanctions on Iran and also must evaluate unemployment number before taking robust steps.

All in all we see robustness in economic activity as stable growth rate of real GDP at 2.7 percent is forecasted by IMF and inflation within 2.5 percent and unemployment reaching full employment levels. The negative implications of US Iraq have plummeted and US China trare tensions have ameliorated giving sense that economic slowdown has troughed out.

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