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1:25:13 - US Federal Reserve Bank has been buying Treasury...

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1/25/13 US Federal Reserve Bank has been buying Treasury Securities in secondary market; the effect of that is the price of bonds increases interest rtes decrease GDP = Consumption ( housing market; consumer spending ) + Investment ( business investment in plant & equipment ) + Gov’t + Exports – Imports FOMC – Federal Open Market Committee (part of the Fed Reserve Bank) Jan 29 & 30, 2013 Set monetary policy for the next 6-8 weeks and future At the end of the meeting, press release – communication tool Tools: reserve requirements, discount rate, open market operations; ( since the crisis :) large scale asset purchases, communication, interest on reserve Fed Reserve Press Release Unemployment, consumption [housing], investment, inflation, inflation expectations Policy: - Continue purchase of MBS $40BB / mo - LT treasury securities $45BB / mo - Federal funds rate at 0 to ¼% Unemployment > 6.5% as long as inflation < 2.5% Inflation: - Serious Problem – inflation hawks (Jeffrey Lacker) - Not a serious problem – inflation doves Benefits of Financial Intermediaries:
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