Economics: The Macroeconomic Calendar Essay

Operation Twist, a plan to buy long-term U.S. debt and sell short-term debt, which will result in a flattening of the yield curve and a drop in long-term debt yields, is a part of the expected future according to the Fed. This means that the historical lows in interest rates that we are seeing will continue in the short run. In the long run however, there looks to be a divergence from that short-run trend. Consumers and businesses in the long-run will get away from the de-leveraging process that we are seeing in the recent past and currently and begin to build up cash that will circulate more unreservedly. This will cause the Fed to set interest rates at higher levels in order to combat against the rise in inflation in the post-deleveraging period.

To begin, the article explains the Federal Reserve’s plan to take a careful approach to enacting contractionary monetary policies, policies used to decrease money supply, in the future. Last December the Federal Reserve raised the interest rates after they had been near zero for years to ensure inflation was kept in check and to promote economic growth. It appeared the economy would be in for another increase in the interest rates sometime this year, but the Feds have rethought that strategy. If the Federal Reserve were to continue to raise interest rates it would have short-run and long-run effects on the Money Market, Goods and Services Market, Planned Investment, Phillip Curve, and Aggregated Supply and Demand. These effects are aspects that have to be considered because they express and explain the effects the increase in interest rates has on the economy and explain if the Federal Reserve is enacting the correct policy to achieve their goal.

the end of a recession. At that point, economic stagnation will have depressed short-term interest rates, but once the

Some experts believe that Trump’s economic policies will increase the inflation rate. Trump’s considered spending on infrastructure will potentially lead to an enlarged employment rate and a larger money supply within the economy. If exchange wars with China and Mexico actually happen, import prices could increase, which will lead to inflation. For example, just after the election results were broadcasted, the Mexican peso plummeted 7.3% opposed to the US dollar. The United States is responsible for a respectable amount of Mexico’s imports. Other countries around the world will be impacted by this. Elevated inflation expectations have induced universal alarm among investors, producing a bond sell-off (specifically for fixed-income treasury bonds whose profit gets consumed with a higher inflation rate.) The selling of bonds has caused a fall in bond prices. Bond yields on the other hand have risen.

The business cycle is a series of quantified ups and downs in economies across the world, similar to the manner in which humans breathe. A positive breath inward to bring oxygen to the lungs, a negative breath outward to push carbon dioxide out of the lungs, designed to keep the respiratory system at equilibrium. Without the outward breath, the inward breath would not occur. The business cycle works in the same manner ¬¬– expansions or “boom” periods acting as the breath inward, and contractions or “recessions” acting as the breath outward. Both are necessary for an economy to function, and one would not be able to exist without the other. This is the crux of the issue of recessions: they are a necessary occurrence, not an evil, in the context

Over the past year we have gone through many changes politically, environmentally, and more. The main change occurring today is the Federal Reserve’s control on monetary policy which affects the interest rates and money supply all caused by the buying or selling of government bonds. The Federal Reserve needs to raise interest rates because they have “remained relatively slow by historical standards” (Binyamin Appelbaum, July 7, 2017). However, the inflation rate and rate of growth in GDP have been relatively low, restraining the Fed from raising the rates too high.

A decreasing economy means a lack of inflation. With lower prices on goods, people can be encouraged to spend more. Lower prices also bring lower rates. This decrease in rates during a downturned economy can actually advantageous for people. People can take advantage of lower rates and make bigger purchases, this both saves the buyer money and also leads to a better economy by adding to the federal reserve. The economy is fluid and tenuous. It's many contributing factors including the reserve, supply and demand, along with countless other impactors like the job market, stocks, etc., create a fluctuation in rates every

The FED decided to carry out its bond purchasing program in August to help prevent deflation (Hauser, 2011). The article could have turned out much differently if the FED did not step up and take action. In addition the FED has the authority to adjust interest rates in accordance with the current economic condition. Currently the FED is willing to curb inflation by adjusting the interest rates at a moment’s notice (Hauser, 2011). The FED’s invisible hand can sometimes help prevent major economic disasters.

The business cycle of the GDP rising and falling all over again is surely how the economy behaves and since today we have not been able to explain exactly why and how to stop it. Business cycles are composed by 4 different periods; expansion, peak, contraction and trough. Every period of economic growth and prosperity, is usually followed by a recession. The duration of each cycle varies sometimes 8 years or even 10 but the order is always the same. Recession are very harmful for the standards of living and economists try at all cause to avoid them (Boyes & Melvin, 2016). Recession is defined as a period of about six months that economy declines significantly. According to Amadeo, there are 5 economic indicators that will drop when a recession take place; real GDP,

The Fed would like to keep both short-term and long-term interest rates low because with lower interest rates it’s cheaper to borrow. Lower interest rates will establish multiple solutions for an economy in a recession such as:

The Fed is cautious of raising interest rates. As interest rates rise, the cost of investment increases and therefore demand for that investment decreases. This causes a leftward shift of the aggregate demand curve as higher rates and relatively more expensive investment trigger a decrease in aggregate demand (G1). Additionally, in order to raise interest rates, the Fed must sell government bonds thus removing reserves from the banking system and reducing the supply of federal funds - causing rf to rise (G2). However, in the event the Fed fears high inflation, than they need to use a contractionary monetary policy, a policy used to fight inflation, to reduce the money supply, increase interest rates, and shift AD to the left (G3). By doing this it increases the cost of borrowing and therefore decreases the GDP (gross domestic product).

During a recession income and wealth decrease, as a result there is an inward shift of the demand curve for bonds. This shift results in an increase in interest rates. When the economy is booming there is an increase in the demand for bonds. This increase in bond demand shifts the demand right from P1 to P2, this shift will increase the interest rate.

there were good indications of market recovery and tightening of credit spreads which meant higher

Stocks were rising on expectations of economic recovery later in the year, and bond prices fell as their yields increased (bond prices and yields are inversely related). The yield on the 2-year notes and 10-year notes, which are heavily influenced by the Fed-regulated interest rates and inflation expectations, respectively, increased from .76% to 1.4% and 2.25% to 3.93 during the same period, respectively. Concurrently, the S&P 500 had gained 4.8%, rebounding 40% from March lows.

A common way of decreasing the amount of inventory a business holds on a daily basis is implementing a just-in-time inventory process. A Just-In-Time inventory system means that the business gets the materials for a product, as they are demanded. “The electronic data