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Fed fund rate - Essay Example
Pages 2 (502 words)
a. The Fed fund rate during the economic crisis in 1973-1975 ranges from 5.54% to 12.92%, in 1980 this level escalated from 9.03 to 17.61. The recent recessions at 1990-1991 Fed fund rate levels dipped at 6.12 to 8.20 and further dropped at 2.09 to 5.31 during 2001…
b. The Fed fund rate averages at 7.10% during the 1970s, 9.97% during the 1980s, 5.15% during the 1990s, and 3.25% during the 2000-2007. The huge differences in the means of Fed fund rates can be explained by the differences in economic and monetary policies adhered by the different chairmen of the Federal Reserve.
c. The Fed fund rate reached its maximum during January 1981 at 19.08% which is during the administration of Paul Volcker. Compared to the other Federal Reserve chairman, Volcker has been reputed as an inflation hawk who is more concerned on fighting inflation compared to a dove whose main concern is unemployment. This perception requires him to set the Fed fund rate at higher levels to fight stagflation.
d. Fed fund rate is lowest during December 2003 at 0.98% due to the strong performance of the US economy. In fact this period saw the strongest economic development in the economy in nearly two decades. It can be recalled that during this period, the inflation targeting monetary policy has been adopted by the US.
f. The Federal fund rate and ten-year Treasury bill rates tend to move apart as shown in the graph above. It should be noted that increases in Fed fund rates is simultaneous with declines in ten-year Treasury bill rates.
g. The Federal Reserve solely influences the level of Fed fund rate. ...
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