Federal Funds Rate Research Articles

A study on Fighting against Inflation

For policymakers, keep prices stable is a persistent goal to pursue. This article firstly investigates the background of inflation, its history, causes and costs are included. Then gives recommendations for U.S. to combat inflation without recession. For monetary policies, rising federal funds rate and Reverse Repurchase Agreement are the contractionary tools to decrease inflation rate in the short run. For fiscal policies, decreasing business tax and stimulating the labor market are supply-side policies that can be used to promote economic growth in the long run. Moreover, we examine the effect on labor market particularly. Based on these anaylsis, we conclude that the most efficient method is to combine the four monetary and fiscal policies.

The macroeconomic effects of exchange rate movements in a commodity-exporting developing economy

This paper empirically examines the macroeconomic effects of exchange rate movements and their transmission mechanisms (trade and financial channels) in Mongolia, a net debtor in foreign currency and a commodity-exporting developing economy, using Structural Bayesian Vector Autoregression (SBVAR) models. Our findings suggest that both the financial and trade channels of exchange rates are operative and have a notable impact at the macroeconomic level. We identify a significant financial channel, causing GDP contractions and affecting investments, particularly in sensitive sectors such as manufacturing and construction in response to DWER depreciation shocks. The traditional trade channel, driven by NEER depreciation, leads to increased net exports with pass-through to CPI. Despite these effects on key macro variables, exchange rate shocks do not substantially destabilize the economy. Foreign shocks, including federal funds rates, China's GDP, and copper prices, have a more pronounced impact. The trade channel plays a crucial role in the transmission of external demand and commodity price shocks, while the financial channel is essential in the transmission of commodity price shocks.

Monetary policy pass-through after the LCR

After the implementation of the Liquidity Coverage Ratio (LCR), trading in the federal funds market, which generally has a relatively favorable LCR treatment, became more driven by market liquidity. As a result, we document that pass-through of the federal funds rate to other short-term interest rates strengthened.

Global supply chain inflationary pressures and monetary policy in Mexico

In this paper, we examine the impact of stress in the global supply chains on inflation and monetary policy in Mexico, a representative emerging market economy. Using non-linear local projections, we estimate the degree of monetary policy tightening required in a high-stress supply chain environment and compare it to that in a low-stress environment. We instrument the monetary policy shocks with shocks to the federal funds rate. Results suggest that in a high-stress regime, the effect of an increase in the monetary policy interest rate on inflation over a one-year period is reduced considerably. We argue that this reduction is due to the slow response of inflation expectations to a monetary policy tightening in a high-stress regime. Furthermore, raising the interest rate has an effect on producer price inflation, a channel that is absent in a low-stress regime. This finding highlights the role of monetary policy in stabilizing inflation when facing supply shocks that are not necessarily permanent.

Stock Market Returns under the Influence of Monetary Policy in the United State

In response to the phenomenon of overheated inflation after the Covid-19 pandemic, the Federal Reserve began to continuously carry out substantial interest rate increases, which has also caused financial markets to suffer heavy losses for a time. Consequently, the emphasis of this study lies in how monetary policy such as the effective federal funds rate and quantitative easing affect the monthly return of S&P 500 index. This paper collects monthly data between July 2004 and June 2023. This paper finds that the impact of effective federal funds rate on the stock market returns is insignificant. The fourth round of quantitative easing significantly affected the stock market returns, that with the quantitative easing the stock market rerurns increase by 2.786 percent. The inflation has a significant and consistent influence on stock market returns, which decreases by 0.4% for every 1% increase in the CPI index. Therefore, the volume of quantitative easing and the pace of asset purchases significantly affect stock market returns.

When the economy falters, hearts suffer: Economic recessions as a social determinant of health in cardiovascular emergencies

IntroductionWhile the relationships between cardiovascular disease (CVD), stress, and financial strain are well studied, the association between recessionary periods and macroeconomic conditions on incidence of disease-specific CVD emergency department (ED) visits is not well established. ObjectivesThis retrospective observational study aimed to assess the relationship between macroeconomic trends and CVD ED visits. MethodsThis study uses data from the National Hospital Ambulatory Care Survey (NHAMCS), Federal Reserve Economic Database (FRED), National Bureau of Economic Research (NBER), and CVD groupings from National Vital Statistics (NVS) and Center for Medicare and Medicaid Services (CMS) from 1999 to 2020 to analyze ED visits in relation to macroeconomic indicators and NBER defined recessions and expansions. ResultsCVD ED visits grew by 79.7% from 1999 to 2020, significantly more than total ED visits (27.8%, p < 0.001). A national estimate of 213.2 million CVD ED visits, with 22.9 million visits in economic recessions were analyzed. A secondary group including a 6-month period before and after each recession (defined as a “broadened recession”) was also analyzed to account for potential leading and lagging effects of the recession, with a total of 50.0 million visits. A significantly higher proportion of CVD ED visits related to heart failure (HF) and other acute ischemic heart diseases (IHD) was observed during recessionary time periods both directly and with a 6-month lead and lag (p < 0.05). The proportion of aortic aneurysm and dissection (AAA) and atherosclerosis (ASVD) ED visits was significantly higher (p = 0.024) in the recession period with a 6-month lead and lag. When controlled for common demographic factors, economic approximations of recession such as the CPI, federal funds rate, and real disposable income were significantly associated with increased CVD ED visits. ConclusionMacroeconomic trends have a significant relationship with the overall mix of CVD ED visits and represent an understudied social determinant of health.

Examining small bank failures in the United States: an analysis using (coarsened exact matching) CEM

Purpose Bank failures are critical events that have far-reaching implications for the financial system and various stakeholders. This study aims to focus on analyzing the phenomenon of small bank failures in the USA. Design/methodology/approach This study adopts the coarsened exact matching (CEM) technique to enhance the reliability of the analysis. By matching similar observed characteristics, the CEM approach helps to address potential selectivity bias and facilitates a more accurate estimation of the treatment effect. This study uses a data set covering the period from 2000 through 2019 and includes 523 failed bank observations and 43,605 nonfailed bank observations. Findings The results reveal several key findings. Small banks, especially those with lower yields on earning assets, those with lower charge-offs on loans and leases, those with higher core capital ratios and those with higher Fed Funds rates are found to be more susceptible to failure. Research limitations/implications Some results align with initial predictions, whereas others present contrasting outcomes. Practical implications This study underscores the significance of understanding the factors contributing to bank failure and emphasizes the importance of studying small bank failures in particular. Originality/value This study uses the CEM method. CEM is a comprehensive approach that combines matching, sample trimming and reweighting techniques. When applying CEM, researchers carefully select a set of core variables to achieve balance between the treated and control groups. The CEM process involves discretizing each continuous variable into distinct bins or categories, a process known as “coarsening.” It then requires an exact match among these binned variables between the treated and control units, which constitutes the matching step in CEM.

The Effect of Rise of Federal Funds Rate on US Stock Market: From the Perspective of US Dollar Appreciation

The study examines the impact of the rise of the Federal Funds Rate (FFR) on the stock price returns and volatility of the United States of America. The study extracted the stock price from January 3, 2022, to June 16, 2023, from the Investing finance terminal, including the Standard and Poors (S&amp;P 500), US Dollar Index, and the National Association of Securities Dealers Automated Quotations (NASDAQ) Index. This study uses the Vector Autoregression (VAR) model and the ARMA-GARCH model to evaluate the stock returns and daily return volatility, respectively. The two models inspect the effect of the US Dollar index on both the NASDAQ and S&amp;P 500. The result of this study suggests that the rise in the Federal Funds Rate would cause the stock market price to decline for a relatively long period. However, the volatility of the daily return remains stable. By studying the effect of the rise in the Federal Funds Rate, policymakers can change the stock prices by adjusting the Federal Funds Rate based on the markets needs.

US Recession Analysis Based on Ordinary Least Squares Regression

The United States is the first developed economy that rebounded from the 2008 global financial. Theoretically, US economic cycle is influenced by several factors, this paper mainly focuses on the linkage of the US economic growth and The correlation between the unemployment rate and the U.S. federal funds rate. Between times with rising economic activity, known as expansions. Whereas, the periods of diminishing economic activity is known as recessions. The economic climate constantly shifts throughout time. Firstly, the rate of employment and the rate of federal funding are cointegrated. The findings of a regression analysis demonstrate that there is a negative concurrent correlation between the federal funds rate and unemployment rate. Secondly, in order to verify the linkage, through an in-depth review of the data, several interlinked and external factors behind the pattern of such correlation related to the variation on economic growth also need to be elaborated.

The Global Effect of Fed Rate Hikes: Stocks, Bonds, and Foreign Exchange Markets

On 23rd March 2023, the Federal Reserve has once again increased its federal funds rate. The policy is published aim for reduce the high inflation rate in the US and prevent once again getting into a recession just like in 2008. This brings both advantages and disadvantages to both the domestic and foreign economies. In this paper, some basic impacts are explained including effects on consumption and investment decisions, stocks and bonds markets, and international relations. As the rise in interest rate increases cost of borrowing and discourages speculation, generally, economic activities are reduced. At the same time, this gives foreign countries heavy pressure by creating outflows of investment funds. Looking forward to the future, it is still possible for the Fed to keep raising its interest rate. To prevent further damages, foreign countries may use expansionary fiscal policy as it can stimulate consumption and investment, and most importantly, bring possibilities of improved economy potential.

The Impact of Monetary Policy on the U.S. Stock Market since the COVID-19 Pandemic

Inflation in 2021 and 2022 grew much faster than the Federal Reserve expected. The Fed downplayed inflation in 2021 and then increased the federal funds rate by 500 basis points between March 2022 and May 2023. This paper investigates how this unprecedented tightening has impacted the stock market. To do so, it estimates a fully specified multi-factor model that measures the exposure of 53 assets to monetary policy surprises over the 1994 to 2019 period. It then uses the monetary policy betas to gauge investors’ beliefs about monetary policy between 2020 and 2023. The results indicate that changing perceptions about monetary policy multiplied uncertainty and stock market volatility.

Analysis of Stock Portfolio with Global Economic Factors using Dynamic Data Modelling

This article analyzes stock portfolios and worldwide economic challenges. This study uses APIs to retrieve data and analyze correlations. To determine and measure how economic indicators affect stock performance. This work introduces an autoencoder-based model to better comprehend the complex relationship between economic conditions and stock portfolio dynamics. The analysis begins with an API retrieval of a wide range of macroeconomic information. These indicators include global economic metrics like GDP, unemployment, CPI, federal funds rates, and treasury bill rates. After collection, data is carefully curated and prepared for analysis. This study uses correlation analysis to understand economic variables and stock portfolio performance. This study explores how economic conditions affect stock prices and portfolio returns. This study seeks to discover trends, dependencies, and future issues that may affect investment decisions. This study also introduces an autoencoder-based neural network model to capture complex nonlinear relationships between economic variables and stock portfolio behavior. Deep learning improves interpretability and prediction, allowing a better understanding of the complex financial ecosystem dynamics. The inquiry provides valuable insights for investors, financial experts, and regulators. This study advances data-driven investment and risk management solutions. The autoencoder-based approach also reveals latent structures and hidden factors that affect stock portfolios. This novel approach opens new study options. In conclusion, this study provides a thorough stock portfolio analysis approach for global economic challenges. API data retrieval, correlation analysis, and a novel autoencoder model are used in this work to better understand the complicated relationships between economic indicators and financial markets. These insights can improve investment and policy decisions in a more integrated and dynamic global economy.

Hawkish or Dovish Fed? Estimating a Time-Varying Reaction Function of the Federal Open Market Committee's Median Participant

This paper estimates a time-varying reaction function of the median participant of the Federal Open Market Committee, using a Taylor rule with time-varying coefficients estimated on one- to three-year ahead median forecasts of the federal funds rate, inflation, and the unemployment rate from the Summary of Economic Projections (SEP). We estimate the model with Bayesian methods, incorporating the effective lower bound on the median federal funds rate projections. The results indicate that the monetary policy rule has become significantly more persistent after the pandemic than in the years prior, and it currently reacts strongly to inflation, at more than twice the responsiveness estimated prior to 2020. Our proposed policy rule produces accurate predictions of the median federal funds rate projections in real time for given SEP forecasts of inflation and the unemployment rate, suggesting that the median participant's reaction function is well-represented by our assumed Taylor rule with time-varying coefficients. Our results show that the median participant's reaction function becomes less persistent and less responsive to inflation yet more responsive to the output gap in anticipation of tighter monetary policy conditions. We also find that labor market activity, inflation, and macroeconomic uncertainty correlate significantly with the evolution of the time-varying coefficients of the rule. Finally, we show that in times of a less persistent policy rule or more responsiveness to inflation, markets perceive nominal bonds as better macroeconomic hedges.

The Effects of CBDC on the Federal Reserve's Balance Sheet

We propose a parsimonious framework to understand how the issuance of central bank digital currency (CBDC) might affect the financial system, the Federal Reserve's balance sheet, and the implementation of monetary policy. We show that there is a wide range of outcomes on the financial system and the Federal Reserve's balance sheet that could reasonably occur following CBDC issuance. Our analysis highlights that the potential effects on the financial sector depend critically on how the Fed manages its balance sheet. In particular, CBDC could in principle put substantial upward pressure on the spread of the federal funds rate and other wholesale funding rates over the interest rate on reserves unless the Fed expanded its balance sheet to accommodate CBDC issuance.

Federal Funds Rate Spillover Effect On Emerging Market Banking Liquidity And Capital – Evidence From Indonesia

This paper examines the spillover effect of the fed fund rate (FFR) on emerging banking liquidity and capital in emerging markets, especially in Indonesia, using the Structural Equation Model (SEM). Data were collected from the Indonesia Central Bank and Financial Services Authority. Our model reveals a significant indirect negative relationship between FFR, banking liquidity, and capital. This relationship was examined both directly and indirectly using the model. While the FFR influence was robust, the impact on liquidity and capital was translated through the local bank rates. It is found that rising interest rates would still result in tighter liquidity to some extent. FFR also impacts capital decisions because the rising interest rate might incentivize managers to borrow from a lower market environment. Thus, observing the indirect relationship, the impact of the FFR depends on the local central bank monetary policy transmission to mitigate the spillover effect resulting from developed economy monetary policy.

Perceptions about Monetary Policy

We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, including over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about this rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings.

EMERGING MARKETS ECONOMIES SENSITIVITY TO US DOLLAR'S STRENGTH DURING RUSSIA-UKRAINE WAR

This paper aims to study the sensitivity of emerging markets economies (EMEs) to the US Dollar's strength during the Russian-Ukrainian war in the long and the short run, where Autoregressive distributed lag model (ARDL) was used to analyze time series daily data in the period 2020-2023. We studied the impact of the US Dollar's strength on EMEs asset prices: EMEs currencies, EMEs bonds (US Dollar-denominated) and EMEs stocks, including the factor of the Russian-Ukrainian war as a dummy variable, as well as the effects of various economic factors: Federal Funds Rate, the US 10-year bond yield, commodity prices index and gold prices. The results showed that Russian-Ukrainian war has a significant positive impact on US Dollar's strength. In the other hand, both of them have significant negative impacts on EMEs asset prices, with varying degrees, where the aforementioned economic factors have asymmetric impacts. Moreover, EMEs stocks were the most Sensitive to Russian-Ukrainian war, US Dollar's strength and commodity prices, meanwhile EMEs bonds market were the least Sensitive.

The Impact of the Fed's Interest Rate Adjustment Cycle on the Price of WTI Crude Oil Futures

This article is based on monthly data from January 2016 to January 2022, including the US Federal Funds Rate and WTI crude oil futures price index. A TVP-VAR model is constructed to study the impact of the Federal Reserve's interest rate cycles on WTI crude oil futures prices. The research found a positive correlation between crude oil futures prices and the Federal Reserve's interest rate cycles. That means that when the Federal Reserve raises or lowers the US Federal Funds Rate, it leads to an increase or decrease in crude oil futures prices. Therefore, it is believed that in the current context of global quantitative easing and the sustained rise in international crude oil prices, China should formulate a new energy strategy that matches the high-quality development of the social economy and accelerate the transformation and upgrading of the crude oil industry.

The Impact of the Federal Funds Rate Hike on Chinese and U.S. Financial Markets

On March 16th, 2022, federal funds benchmark rate was increased by 25 basis points, to the range of 0.25% to 0.50%, by the U.S. Federal Reserve (Fed) , after seeing Russias war on Ukraine as a potential risk producing higher inflation and decreasing both national and international economic activities. The first increase in federal funds rates since 2018 was followed by the immense increase in rate. Until November 2022, the Fed has raised the federal funds rate seven times, leading impacts on many fields, including the financial markets in both U.S. and China. This paper selects two well-known financial indexes, representing the market performance of both Chinas stock market and U.S. stock market. Since the exchange rate is highly sensitive to interest rates. After the raise in the benchmark of federal funds rate, U.S. dollar has appreciated, and Chinese Yuan has depreciated. This paper introduced the exchange rate as the media to reflect the impact on the Chinese stock market by federal funds rate hikes. After intercepting the stock data from 2 years after the Great Depression till one month before the first federal funds rate hike, this paper constructs ARIMA model to analyze the impact on each stock market by federal funds rate hike, and forecast their further performances, providing suggestions to investigators in the U.S. and China.

Predicting the Federal Funds Rate: A Linear Regression Analysis

In this research, we aim to utilize linear regression estimated by ordinary least squares (OLS) to construct a predictive model for the federal funds rate in the U.S.. It is a crucial instrument of implementing monetary policy, including financial institutions, investors, and policymakers. To construct the model, we will obtain data on various economic and financial indicators that affect the federal funds rate. This will include macroeconomic variables such as inflation and GDP growth, as well as financial market indicators such as the yield on government bonds and the reserve balance level held by Federal Reserve banks. We will then use this data to fit a linear regression model and evaluate its performance using various statistical metrics. Once the model has been developed, we will use it to make predictions about future federal funds rate actions and determine the leading causes of these movements. Additionally, we will test the model's accuracy given changes in the underlying data and assumptions. The findings of this study will be helpful to a wide range of academic and practical audiences and will offer insightful information on the factors affecting the federal funds rate.