Money Market Rate Forecasting
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The media pays close attention to interest rates, noting when the Federal Reserve Board's Open Market Committee meets, and the stock and bond markets react to real or anticipated changes in interest rates. Yet many consumers do not understand the interest rates discussed by the Fed and the media; what consumers do appreciate is that many mortgages and other loan rates are based on these figures. When interest rates increase, loan rates increase and vice versa. This research explores the likely movement of interest rates (as measured by federal funds and T bills) over the next 12 months, and considers what effect movement in these areas will have on the yield curve. The discussion then turns to an examination of the banking system in the United States and the effect that the anticipated movement of interest rates will have on the banking system.The Fed's mission is to protect the integrity of the nation's money by providing a healthy banking and financial system that is consistent with price stability and sustainable economic growth. This basic mission has not changed for the more than 80 years that the Fed has been in existence. Although the purposes and functions of the Fed have not changed over its history, the economic, financial and social environment in which the Fed operates has changed. The Fed, as a result, has transformed itself and the way it does business in response to this dynamic environment.
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(see page 16), the yield curve can be expected to be approximately flat. However, if there is an increase in interest rates, the yield curve can be expected to slope upward. This is true for even a minor increase in interest rates, although the slope of the yield curve would not be steep. This increase comes about because investors are more likely to purchase short-term bonds in order to be able to take advantage of any additional interest rate increases.
The Banking System
The Glass-Steagall sections of the Banking Act of 1933 may be the most well-known parts of that act. These sections prevented investment banks from accepting bank deposits. It also prevented commercial banks (including state-chartered banks that are members of the Fed) from underwriting, distributing, selling or dealing in investment securities. In addition, banks were prevented from affiliating with firms whose primary business was the securities underwriting business. Even under Glass-Steagall, commercial banks were allowed to engage in underwritings abroad; this became a significant market after 1970s with Eurobonds. Banks could also underwrite government bonds even after Glass-Steagall.
In 1989 and 1990, the Fed authorized bank holding compan
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Some common words found in the essay are:
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Approximate Word count = 3826
Approximate Pages = 15 (250 words per page)
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