Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Federal Reserve Bank (FED) raised the target for the federal funds rate by 25 basis points from 0%.25% to .25%.5% on March 16th,2022. Subsequently,

image text in transcribed

1. Federal Reserve Bank (FED) raised the target for the federal funds rate by 25 basis points from 0%.25% to .25%.5% on March 16th,2022. Subsequently, FED further raised the target by 50 basis points in May and by 75 basis points in June, July, September, and November of 2022. It is widely anticipated that FED will increase the target by either 50 or 75 basis points in December. However, there is a divergence in the predictions of the future course of FED's policy in 2023. Some economists argue that FED will pause after December, whereas others believe that FED will continue to hike the rates, albeit at a slower rate. The current target for the federal funds rate (as of November 29th,2022 ) is 3.75%4%. The FED also began selling its holding of Treasury bonds and mortgage-backed securities (MBS) from June of this year (Quantitative Tightening). Stock market as measured by the S\&P 500 declined from 4797 on January 3rd,2022 to 3577 on October 12th,2022 (25.5\% drop). Nasdaq fell by almost 38% during the same period. However, the stock market has rebounded since October 12th, as the fear of aggressive tightening by FED has dissipated due to gradual decline in the inflation rate (from 9.1% in June to 7.7% in October). Do you think FED will continue to raise the target for federal funds rate in the next six months or will they pause? What is your prediction of the stock market in six months from now

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Public Finance

Authors: Harvey S Rosen

7th Edition

0072876484, 978-0072876482

More Books

Students also viewed these Finance questions

Question

Recognize and describe the steps in the recruiting process

Answered: 1 week ago

Question

Appreciate the contribution made by a positions incumbent

Answered: 1 week ago

Question

Know how to conduct a position analysis

Answered: 1 week ago