Macroeconomics - Regulation

This question will introduce you to think like a bond trader/wealth manager. What do you think happened to short term and long term yields and bond prices after each of these Fed FOMC announcements? Make sure you explain your answer and describe the mechanism of monetary policy announcement vs. interest rates movements that led to your answer. HINT: Remember that at any point in time, bond traders know when the Fed is going to make an announcement, and try to anticipate the target rate. Read the words of the Fed carefully, think about their target interest rate today and other information they are revealing in their announcement.

YOU ARE STRICTLY VERBOTEN FROM GOOGLING THESE ANNOUNCEMENTS and plucking the answer from the newspaper of the day! Just remember that this was towards the end of the latest expansion in the US economy and the reference to the housing market stabilization is referring to the fact that housing prices had already started to decline. Have fun with it. I am looking for you to argue your point coherently rather than get the exact movement in bond prices. You are allowed to look at a chart of the FFR in the last decade and think about what was happening in the economy at the time, where people thought the interest rates should move etc.

a. January of 2007 The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters. Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures. The Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address...