Fed Tapering: How Has Feds Announcement of Tapering Affected Consumers and Foreign Economy?

Abstract

This articles purpose is to investigate the Federal Reserves tapering decision and how it affects consumers behavior and the foreign economy. To generate a prediction of how tapering changes consumers behavior, we recorded the dates that FOMC has made announcements and used them to create a regression analysis with the US treasury yield. To make sure our statistical inference is reliable, we analyzed different types of treasury bonds, which include 1 year, 3 years, 5 years, 10 years, and 30 years. We also utilized the real-interest rate and Chinese Yuan to US dollar exchange rate to analyze the correlation between interest rate and exchange. The purpose is to give a rough understanding of how tapering could affect foreign economy. When we are concluding the analyzed result, a counterintuitive finding appears. When the Fed announces a tapering or tightening decision, we should expect an increase in the interest rate. However, the interest rate decreases whenever the Fed decides to taper. On the other hand, as the interest rate falls, we should expect a depreciation of the dollar and a decrease in the price of Americas goods and services. It shouldve benefited foreign economies, but instead, it worsens them and causes their currencies to further depreciate. Altogether, the results suggested that the Feds tapering decision will change consumers behavior and unavoidably decline other countries' economies.