The Federal Reserve will most likely raise interest rates in December according to a new poll of primary dealers.
The median response in the poll was that the Fed would raise rates by a quarter-percentage point at its meeting on December 13-14 taking the target range for the federal funds rate to 0.50-0.75%.
The poll also showed that the Fed is expected to announce a reduction in the size of its balance sheet at the same meeting. The balance sheet has been swollen by years of quantitative easing.
The primary dealers are the institutions that trade directly with the Fed.
A separate poll of economists by The Wall Street Journal showed that 54% expect the Fed to raise rates in December while 46% do not.
The latest poll was conducted after the release of minutes from the Fed’s October meeting which showed that policymakers were Split over whether to raise rates in December.
Some members argued that the Fed should wait for more evidence that inflation is moving closer to its 2% target.
But others said that the case for a rate increase had strengthened in recent weeks with the labor market continuing to strengthen and inflation gradually picking up.
The minutes showed that the Fed is likely to announce a reduction in the size of its balance sheet at its December meeting.
The balance sheet has been swollen by years of quantitative easing.
The Fed has been gradually reducing the size of the balance sheet since October 2017.
The primary dealers are the institutions that trade directly with the Fed.
A separate poll of economists by The Wall Street Journal showed that 54% expect the Fed to raise rates in December while 46% do not.
What is the federal funds rate?
The federal funds rate is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.
What is the current federal funds rate?
The current federal funds rate as of March 15 2020 is 0.
25%.
Will the Fed raise interest rates in 2020?
There is no certain answer as the Federal Reserve will make decisions based on economic data.
However based on current data it is not likely that the Fed will raise interest rates in 2020.
What is the relationship between the federal funds rate and the interest rates on Treasury securities?
Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates foreign exchange rates long-term interest rates the amount of money and credit and ultimately a range of economic variables.
What are the factors the Fed considers when making decisions about interest rates?
The Federal Reserve considers a wide range of information including measures of labor market conditions inflation financial developments and monetary policy.
What is inflation?
Inflation is a measure of the rate of increase of prices for goods and services.
What is the target inflation rate for the Federal Reserve?
The Federal Reserve’s target inflation rate is 2%.
What is the current inflation rate?
The current inflation rate as of March 2020 is 1.
5%.
What is the relationship between inflation and interest rates?
In general the higher inflation is the higher interest rates will be.
What is the federal funds rate used for?
The primary tool the Fed uses to implement monetary policy is the federal funds rate.
The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
What are the goals of the Federal Reserve?
The Federal Reserve’s goals are to promote maximum employment stable prices and moderate long-term interest rates.
What is the full employment rate?
The full employment rate is the rate of unemployment at which all workers who are able and willing to work at the going wage rate are able to find employment.
What is the current full employment rate?
The current full employment rate is 4.
4%.
What is the relationship between interest rates and employment?
In general higher interest rates lead to higher unemployment.
What are some other factors the Federal Reserve considers when making decisions about interest rates?
In addition to measures of labor market conditions inflation and financial developments the Federal Reserve also considers money supply credit conditions and the state of the economy.
