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Working with Federal Reserve’s Publications Name University Working with Federal Reserve’s Publications Introduction Over a year and a half, world economy has experienced a hard blow. There is a general collapse of global credit boom, which was initiated by the ending of housing boom in the United States and other countries…
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Download file to see previous pages Federal Reserve’s Assessment of the Current Economic Activity and Financial Markets and their View on Inflation The financial crisis is on the rise worldwide. Prices of commodities in the markets are shooting up and the consumers are finding it difficult to survive in these harsh financial situations. The financial organization, firms and industries are finding it unbearable to hold on to the competition. In the United States for instance, Fannie Mac and Freddie Mac which are government parastatals were put under receivership. Lehman brothers’ holdings and other large business institutions were either at the verge of collapsing or they actually did collapse. Others were acquired by their competitors under unavoidable circumstances of bankruptcy. Large withdrawals of money were made by stakeholders and investors which affected the money market mutual funds. This undermined the stability of short term funding markets and the bank wholesale funding markets. The strain on financial markets has also caused economic activities to decrease. The GDP was reported to have gone down at an annual rate of 6.2 percent in the last quarter of the previous year though recent indicators show some slight improvements. The rate of unemployment moved 7.6 percent .Reacting to deterioration of job markets, loss of equity, housing wealth and tightening of credit conditions, families cut on their spending habits. Buying of homes and construction of new ones are not doing well at all despite the fact that mortgage rates have gone extremely down. This reflects how our economy is uncertain and home prices are likely to fall even lower. Manufacturing sectors have also deteriorated in their output bringing its rate of capacity utilization very low. The weak economy has led to many premises cutting their capital expenditures. Businesses have done their best to reduce the number of investors. Sales will remain poor for some time and the cut down on production is to be evident in the coming months. This was a threat to international economic stability. This projected a devastating financial collapse globally. The treasury saved the situation by injecting 250 billion dollars in to the U.S.A. financial organization. Monetary Policy Tools The Federal Reserve Uses To Stabilize The Economy And Maintain Price Stability.  Late last year, Federal Reserve responded aggressively to the deterioration of financial markets. This was evident in the way they continued to ease monetary policy. The Federal Open Market Committee brought its fund rates at a very low rate of 1/4 percent where it has remained to date. Making the federal funds rates almost zero, the Federal Reserve is focused on other ways in which it can ease tough conditions at the credit markets. They have new facilities and have expanded existing facilities to facilitate the flow of credit services to its customers. (Monetary Policy And The Economy),notes that lower interest rates in the United States will lead to decline in the exchange value of the dollar and prompt an increase in price of imports and decline in the price of exports. Auction facility was also increased so that banks could obtain the funds they needed to serve their credit customers better. The FOMC also expanded its network swapping lines with foreign central banks to help in solving the global financial crisis which was now getting into the funding markets of the U.S.A. ...Download file to see next pagesRead More
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