FIGURE 1: M1 money supply (2005-2010)
FIGURE2: M2 (2005-2010)
The figures 1 and 2 as well as table1 developed above shows us the movement of the money supply (M1) and M2 and their growth rates in a monthly bases from 2005-2006 and help us understand recent movements of the money supply. Information on how those movements in money supply are determined, can be derived from the money supply equation M=m*(MB+BR). This equation suggests that the movement in the money supply that we can see in Table1and Figure1 is explained by either changes in MB+BR (the nonborrowed monetary base plus borrowed reserves) or by changes in m (the money multiplier). Over long periods, the primary determinant of movements in the money supply is the nonborrowed monetary base (MB), which is controlled by the Federal Reserve open market operations. For shorter time periods, the link between the growth rates of MB and the money supply is not always close, primarily because the money multiplier (m) experiences short-run swings that have a major impact on the growth rate of the money supply.
(** the data of Table1can be found in ).
3. Federal Open Market Committee (FOMC)
The Federal Open Market Committee (FOMC) consists of twelve members--the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.
The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.
2011 FOMC meetings 2010 FOMC meetings
As we can see from the above tables the last meeting of the FOMC was on December 14th of 2010 and the next scheduled meeting is on January 25-26 of 2011.
By comparing the last two statements of the FOMC meetings (November and December 2010) we can see that there hasn’t been any significant change in the state of the economy. Both statements say that the economic recovery is continuing but in a very slow rate that has been insufficient to decrease unemployment. Household spending is increasing in a moderate level due to the fact of high unemployment levels, low income growth, lower housing wealth and tight credit (all of these make people feel uncertain for the future and as a consequence they spend less). Business spending is rising but not as fast as in the beginning of the year. Housing sector continues to be depressed AND Inflation expectations remain stable.
(**the data can be found at and ).
4. Federal funds rate and Federal Reserve Discount Rate
Federal funds rate is the interest rate on overnight loans of reserves from one bank to another, and is considered as the primary indicator of the stance of monetary policy.
Federal reserve Discount rate is the at which may short term from a .
Table 2: Federal Fund rate (2005-2010) Table 3: Federal Discount Rate (2005-2010)
Figure 3: Discount Window Chart
Figure 4: Federal Fund Rate Chart
As we can see and from Table 2 ,3 as well as from the Figures 3,4 both federal funds rate and window discount were increasing from 2005 until the middle of 2007 , they were constant for some months at the end of 2007 and beginning of 2008 and after 2008 until now we can see that they are decreasing constantly.
(**the data were found at ).