5 new wk assignments

A. The Federal Open Market Committee, also known as the FOMC directs U.S. monetary policy, The FOMC consists of twelve members including the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; along with four of the remaining eleven Federal Reserve Bank presidents, who serve one-year terms on a rotating basis (The Fed - Federal Open Market Committee, 2021). The FOMC in response to the pandemic held two emergency meetings in March 2020, where they lowered the target Fed Funds rate to 0-.25 (Amadeo, 2021). The FOMC’s clear communication with the public is imperative given the immediate impact their respective messaging can have on the market. Loretta J. Mester notes that clear communication from the Fed can more effectively help households and businesses make better economic decisions (Mester, 2018). Furthermore, Mester argues that the clarity demonstrated by the Fed can transpire into the public having a better understanding of monetary policy (Mester, 2018). Given the economic challenges and uncertainty caused by the Covid-19 pandemic it is especially important that the FOMC maintain a clear message regarding any policy decisions, Mester additionally notes that clear communication from the Fed during an economic crisis, is critical because it can help investors make decisions regarding the future economic outlook (Mester, 2018). B. The Federal Reserve in response to the pandemic lowered the target fed funds rate to 0-.25 in March 2020 (Amadeo, 2021), The Fed also employed the use of quantitative easing, a measure that was used in response to the 2008 Financial Crisis. Quantitative easing involves the Fed purchasing longer term securities that in turn lower longer term rates. Quantitative easing is conducted in an effort to encourage lending and investment (The Investopedia Team, 2021).Moreover, the Fed lowers rates to stimulate the economy during an economic downturn; borrowers like to take advantage of lower rates as that gives the respective borrower more purchasing power. The Federal Reserve’s actions in conjunction with the fiscal policy enacted by the government provided stability to the economy during the pandemic. Zachary Karabell argues that the Fed acted quickly and likewise recognized the severity Covid-19 posed to the economy before congress did (Karabell, 2020). Karabell’s arguments echo the opinion of economist and Chief Investment Officer of PIMPCO Mohamed El-Erian, who likewise notes that the Fed’s response to the pandemic was “stunning” and unprecedented (El-Erian, 2020). El-Erian further notes that the Fed’s actions at the beginning of the pandemic exceeded the steps taken during the 2008 Financial Crisis and its respective aftermath (El-Erian, 2020). ================================================ In March of 2020, the United States economy was introduced to unprecedented downturn due to the novel virus COVID-19. Without much advance notice, there were many extreme protective measures that were implemented in order to reduce the spread of the virus. Social distancing measures and Stay-At-Home orders effectively and suddenly closed parts of the economy. Many industries such as hospitality, airline and travel were placed in a halt. Due to the cessation of many businesses, the economy took a downturn. Unemployment was increasing at record numbers (Monetary Policy Report). In a response to the economic decline, the Federal Open Market Committee had to put measures into effect in order to ease the economy’s downward journey. First, the FOMC lowered the target range for federal funds rate. The federal funds rate is “the rate banks charge each other for loans of reserves to meet their minimum reserve requirements” (Farnham, 2014, p. 398). Lowering the federal funds rate also lowers other interest rates in the economy and increases the amount of bank reserves in the system. If there are more reserves and lower interest rates, then consumers are more motivated to purchase items such as homes. During 2020, I took advantage of the decline in the interest rates and purchased my first home. Another measure that the FOMC took in order to stabilize the economy was purchasing securities (Monetary Policy Report). “If the Fed wants the federal funds rate to fall, it will buy government securities from a bank. It pays for these securities with a check drawn on itself. When the selling bank presents the check for payment, the Fed increases the reserves in the account of the bank, and, thus, the total reserves in the banking system increase. “(Farnham, 2014. P. 398). Given the present economic conditions, the Federal Open Market Committee was effective at promoting economic stability although there is still a long way to go in the process. With the introduction of the COVID-19 vaccine and the decreased demand to social distant, businesses are able to begin the process of rebuilding (Lynch). With the assistance of the FOMC’s measures and the assistance from stimulus packages, the US is ahead of other countries in the road to “normalcy”. Interest rates are still low which assists lenders borrow more affordably. Unemployment rates are trending downwards which is a good sign for the labor market.