Week 6B Questions - Tim Lee - Week 6B Questions Tim Lee...

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1)On October 29, 2014, the members of the Federal Open Market Committee (FOMC) of the Federal Reserve Board voted to maintain its federal fund target within the same range of between 0.25% basis points to 0% percent, as it was set by the FOMC in August2011. But in 2011, the economy was in severe recession and the purpose was to boost the economy by increasing liquidity in the banking system at this low rate when the inflation was also very low. The specific action of the Fed trade was to purchase treasury securities every day to increase the money supply and thus keep the interest rate (the federal fund rate) low to stimulate the economy.But in October 2014, the economy has showed its near full recovery and stock market and financial institutions are performing very well since 2011. On October 29, 2014, the FOMC also decided to end the asset purchase plans under Quantitative Easing (QE III) under which the Fed had been buying mortgage backed securities and LT Treasury Bonds since the recovery started in 2011. Upon this decision to end the QE III of asset purchase and keeping the same federal fund rate target, the Dow Jones Industrial Average Price gone down significantly and did not fully recover by the end of the trading day.

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