Fomc

Andrew Meinsen

9-29-2013

FI301-001

FOMC Assignment 1

The Federal Open Market Committee’s September meeting proved to be a very important and significant gathering. On their first meeting since July, the FOMC recognized a consistent increase in nationwide economic activity, including positive employment percentages and higher household participation and spending rates. While the committee had begun to see steady improvements in economics as a whole, there were areas of concern that included a large emphasis on decreasing unemployment and implementing policies to stabilize the price level. In addition, due to higher mortgage rates, the FOMC decided to continue its’ regular purchase of mortgage-backed securities, which total almost fifty billion dollars. Each month

Reasoning behind these decisions can all be traced back to the committee’s long-standing belief that the decrease in unemployment directly leads to a healthier, more consistent economy. With higher employment rates, the FOMC can expect a decrease in inflation rates and a more accurate depiction of how the general economy responds the changes in the financial market. When employment remains at a higher percentage, the committee feels that all forces within the market are slowly pushed towards their natural settings, such as price level and inflation.

Perhaps the largest aspect of the meeting entailed the FOMC’s continuing decision to purchase monthly investments ranging from 40-45 billion dollars per month. These purchases are intended to yield high return rates, which are then reinvested into mortgage-backed securities and eventually sold at auction prices, which return even greater interest rates. With current mortgage rates that are less than ideal, it is the FOMC’s vision that these high-return security investments will consistently improve the struggling mortgage market. With this successful plan in place, the FOMC anticipates that households and businesses within the general economy...