Internet Exercise: Understanding the Federal Reserve
Date Due:April 5, 2005
Instructions:The Federal Reserve Board’s Web site contains valuable information and useful links to other Web sites. All the following questions can be answered by going to the Federal Reserve Board’s Web site () or to one of the sites linked to it.
1.Go to the Federal Reserve Board’s Web site, click on the monetary policy link and then the Federal Open Market Committee link and do the following: (1) Identify when the most recent FOMC meeting occurred. (2) Read the Statement issued after the meeting. What did the FOMC decide concerning the target Fed Funds rate? Briefly, what was the justification for that decision? (3) What is the FOMC’s most recent thinking about the state of the economy? (4) Find an article in the Wall Street Journal or some other business publication that discusses the outcome of the recent FOMC meeting or the direction of monetary policy in general. How does the discussion in the article compare to the FOMC press release? Did the reporters get it right? Did the article mention any impact of the announcement on the stock market or bond market? If so, what was the impact and how did the article explain it? Again, did the reporter get it right?
2.At the Federal Reserve web site, go to the Monetary Policy page, click on the Beige Book link. Then click on the Report link for the most recent FOMC meeting. Read the national summary page and the page for our Fed district. Discuss how the economy in our Fed district is performing. Is it fairing better or worse than other districts? What sector of the economy in your district is driving your conclusions? Comment on whether you think the most recent FOMC decision will benefit your Fed district more or less than other Fed districts.
4.At the Federal Reserve web site, find Alan Greenspan’s most recent remarks before Congress and summarize his opinions on the following topics:
a.The causes of recent GDP growth
b.The state of the federal government budget
c.The cause of the current government deficits
d.The proper course of action to reduce the deficit
5.Find the Fed’s most recent Monetary Policy Report to the Congress. Read Section 1, “Monetary Policy and the Economic Outlook.” What was the Fed trying to do with monetary policy? What was the economic basis for the Fed policy actions? What impact did the policy actions have on the Fed Funds rate, the 2-year Treasury rate, and the 10-year Treasury rate? Did the Fed change the discount rate during this period? What was the justification?