FEDERAL RESERVE & INTEREST RATES.   Term Paper ID:24110 Click to get this paper

Essay Subject: Analyzes capital market activity (employment, manufacturing, sales) leading up to September 24, 1996, decision to not raise rates.... More...

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Paper Abstract: Analyzes capital market activity (employment, manufacturing, sales) leading up to September 24, 1996, decision to not raise rates. Paper Introduction: THE 24 SEPTEMBER 1996 FEDERAL RESERVE DECISION ON INTEREST RATES: AN ANALYSIS OF CAPITAL MARKET ACTIVITY Introduction The Federal Open Market Committee of the Federal Reserve, meeting on 24 September 1996, voted to hold interest rates steady (“The Fed” 21). This research analyzes some of the activity of the capital market in the United States, with an emphasis on the influence on this activity of employment, manufacturing, and retail sales indicators in the three-week period prior to the meeting on 24 September 1996. Employment The official insured unemployment rate in the United States for August 1996 was 5.1 percent, down from 5.4 percent in July 1996 (“Economic Indicators,” 21 September, 104; “Economic Ind Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Coal: 21,444, net tons for the week ending 14 September 1996, down from 22, 45, net tons for the week ending 31 August 1996. Taken together, the two indicatorsprovided conflicting but inconclusive evidence with respect the characterof future economic performance. Crude-Oil Refining: 14,518 barrels-per-day for the week ending 21 September 1996, up from 14,415 barrels-per-day for the week ending 7 September 1996. Stock Market Reactions to Employment, Manufacturing, and Retail Sales Indicators On 25 September 1996, the Dow-Jones Industrial Average closed at5,877.4 ("Financial Indicators" 123). While this report reflected essentially flat retailsales for the three-week period immediately prior to the decision by theFederal Open Market Committee to leave interest rates unchanged, the retailindustry and economic forecasters had projected a gain in retail sales forthe period. Thus, the generally lower level of risk associated with high quality bondsin relation to the level of risk associated with equity shares causesinvestors to shift funds away from the stock market and toward the bondmarket when interest rates rise. Rail Freight: 26, , , ton-miles for the week ending 14 September 1996, down from 26,7 , , ton-miles for the week ending 31 August 1996. Thestock market, thus, reacted to the changes in the indicators by runningshare prices (as reflected in the Dow-Jones Industrial Average) up by morethan 22 points. Automobiles: 139,238 units for the week ending 21 September 1996, up from 1 5,568 units for the week ending 7 September 1996. None ofthese outcomes occurred in the three weeks immediately prior to thedecision by the Federal Open Market Committee to leave interest ratesunchanged. On 4 September 1996, the Dow-JonesIndustrial Average had closed at 5,656.9 ("Financial Indicators" 99). Onbalance, the manufacturing data were somewhat more negative than were theemployment data. Lumber: 5 2,6 , board-feet for the week ending 14 September 1996, down from 5 7,1 , board-feet for the week ending 31 August 1996. Thus, the failure to attain the projected growth in retailsales, coupled with an actual performance that was slightly negative,provided support for the decision by the Federal Open Market Committee. Thus, it was not a case of nogrowth in retail sales, but rather, was a case of growth not continuingwhen such growth had been projected. Theincrease in 1996 over 1995 was 4.9 percent. The retail sales data for the 1-21 September 1996 period, coupled withthe year-to-year data for comparable periods, presented the Federal OpenMarket Committee with another set of essentially inconclusive information.This character of the data supported the Committee's "wait and see"approach to interest rates at the 24 September meeting. Week ending 7 September 1996: 338, ("Business Week Index" 1 2). As was true for the data related to employment, the data related tomanufacturing production were both conflicting and inconclusive. Week ending 14 September 1996: 329, ("Business Week Index" 1 4). Shifting funds away from the stock marketlowers demand for equity shares, and in turn, lowers share prices. Works Cited"Business Week Index." Business Week (23 September 1996), 1 3."Business Week Index." Business Week (3 September 1996), 1 2."Business Week Index." Business Week (7 October 1996), 1 4."Economic Indicators." Economist, 34 (21 September 1996), 1 4."Economic Indicators." Economist, 34 (14 September 1996), 1 4."The Fed Was Wrong." Economist, 34 (28 September 1996), 21."Financial Indicators." Economist, 34 (28 September 1996), 123."Financial Indicators." Economist, 34 (7 September 1996), 99. Electric Power: 62, 96, , kilowatt-hours for the week ending 21 September 1996, down from 68,437, , kilowatt- hours for the week ending 7 September 1996. The increase in initial claims for unemployment tended, to someextent, to offset the decrease in the unemployment rate within the contextof projecting future economic activity. The reportindicated that national retail sales dropped .3 percent for the period 1-21 September 1996. THE 24 SEPTEMBER 1996 FEDERAL RESERVE DECISION ON INTEREST RATES: AN ANALYSIS OF CAPITAL MARKET ACTIVITY Introduction The Federal Open Market Committee of the Federal Reserve, meeting on24 September 1996, voted to hold interest rates steady ("The Fed" 21).This research analyzes some of the activity of the capital market in theUnited States, with an emphasis on the influence on this activity ofemployment, manufacturing, and retail sales indicators in the three-weekperiod prior to the meeting on 24 September 1996. Employment The official insured unemployment rate in the United States for August1996 was 5.1 percent, down from 5.4 percent in July 1996 ("EconomicIndicators," 21 September, 1 4; "Economic Indicators," 14 September, 1 4).These data alone provide an indication that the economy is growing at arate that could pose a risk of increased inflation. Thus, one may concluded that the investment community as agroup read the tea leaves in exactly the same way those indicators wereread by the members of the Federal Open Market Committee. These data were asfollows: Steel: 1,942, net tons for the week ending 21 September 1996, down from 1,984, tons for the week ending 7 September 1996. Over the three weeks preceding the Committee's decision, however,initial claims for unemployment benefits had increased. Manufacturing During the three-week period prior to the decision by the Federal OpenMarket Committee to leave interest rates unchanged, production indicatorsreported for eight major industries decreased for five of the industries,while increasing for three of the industries ("Business Week Index" 1 3;"Business Week Index" 1 2; "Business Week Index" 1 4). Risinginterest rates imply that investors can earn more money in the bond market. Nevertheless, as was true of the employment data, themanufacturing data provided some support for the "wait and see" approachadopted by the Federal Open market Committee in deciding to leave interestrates unchanged until at least the Committee's next scheduled meeting on 13November 1996. Thus, the decision by the Federal OpenMarket Committee to leave interest rates unchanged at least until the nextscheduled meeting of the Committee on 13 November 1996 can be interpretedas a "wait and see" approach to economic management. Trucks: 121,81 units for the week ending 21 September 1996, up from 1 ,614 units for the week ending 7 September 1996. Thus, alone, thesedata would have supported a decision by the Federal Open Market Committeeto raise interest rates, as opposed to the Committee's actual decision toleave interest rates unchanged. As was true of the data relative to both employment and manufacturing,the data related to retail sales was somewhat contradictory in that retailsales levels as reported by Redbook Research did increase in the 1-21September 1996 period in relation to the comparable period in 1995. An increase in interest rates, other factors remaining equal, can beexpected to cause share prices on the stock market to fall. Initial claims forunemployment reported during this period were as follows: Week ending 31 August 1996: 316, ("Business Week Index" 1 3). Retail Sales Dow Jones Business News Service reported the results of the RedbookResearch survey of national retail sales on 24 September 1996. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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