At a Glance
- The role of the Federal Reserve has changed in the last 30 years, but its mandate has stayed the same.
When the Federal Reserve cuts interest rates, as they did in October for the third time in 2019; or raises them, as they did four times in 2018, it makes headlines. Where the Fed sets rates has an impact on how people invest and the rates at which they can borrow. It’s big news and rightly so.
But what is the job of the Federal Reserve? When it move rates up or down, what is it trying to accomplish, and what information does it use to reach its decisions?
In the latest OpenMarkets Weekly, Jack Bouroudjian takes on the topic of the Federal Reserve’s mandate, which covers two areas: price stability and growth.
Price stability includes the Fed’s well known 2% inflation target. Growth is harder to measure since much of it involves fiscal policy, which includes recent news about taxes, tariffs and spending, says Jack.
Equally important to understand are the key indicators the Fed watches to gauge the health of the U.S. economy. These include the yield curve, consumer price index, producer price index and the personal consumption expenditures price index.
Understanding the Fed often means understanding the numbers behind their rate decisions.
“As we go forward, pay attention to the indicators which will drive Fed decisions. Between the readings on inflation and the yield curve, one can get a good grasp of future Fed actions,” says Jack.