¶ … Defense of the Fed's New Interest-Rate Policy, which was published by The Wall Street Journal on January 6th, 2013, financial reporters Frederic S. Mishkin and Michael Woodford carefully craft a justification of the Federal Reserve's latest revision to its federal-funds rate target. The purpose of the article is to inform readers about the Fed's recent Federal Open Market Committee (FOMC), which resulted in the decision to keep the federal-funds rate near zero with a contingency based on the national unemployment and inflation rates. By linking the federal-funds rate target to a baseline of 6.5% unemployment, and a predicted rate of 2.5% inflation, while also providing public notice regarding its previously private policy criteria, the Fed is renewing its efforts to stabilize an economy battered by a prolonged recession. As Mishkin and Woodford state in the article, this "commitment not to raise rates in the future as soon as might have been expected is an obvious way the FOMC can loosen current financial conditions" (2013), because when borrowers are secure in the knowledge that their interest rates will remain steady the flow of investment capital improves dramatically. While the authors remain supportive of the Fed's latest policy revision, they also express a series of reservations regarding the overall strategic objectives associated with this shift, stating unequivocally that "the Fed's new approach has invited confusion about its longer-run policy targets" (Mishkin & Woodford, 2013). Their main point of contention appears to be the fact that on January 25th, 2012 the Fed explicitly stated its intention to avoid specifying a numerical target for maximum levels of sustainable unemployment, as this sector of the national economy remains outside of the Fed's recognized jurisdiction. As the authors of this article view the issue, the Fed's recent announcement that the federal-funds rate target will be tied directly to specific unemployment and inflation rates was not made with the proper level of clarification, allowing public opinion to shift to...
Because the authors of the article agree with the fundamental principles underlying the decision to make federal-funds rate criteria a matter of public record, the remainder of the article is dedicated to offering direct advice aimed at improving the Fed's messaging and public relations. Mishkin and Woodford remind readers in the distinctively droll tone made famous by The Wall Street Journal, "the central bank needs to reiterate that it does not have a 'target' unemployment rate and is not determined to achieve a specific unemployment rate regardless of the amount of monetary stimulus required to reach it (because) that type of overreaching ended badly in the 1970s, with rising inflation and unemployment" (2013).
Interest Rate Risk Management This report aims to discuss the volatility of interest rates and how that issue is important for insurance companies, especially those underwriting premature death risks and selling annuities. The report also presents insights into why interest rates are important for other financial institutions such as banks and corporations who hold interest related securities throughout their accounting processes. Finally, the essay offers a status of the interest rate
NPV This becomes more complicated when trying to determine the changes that would occur to the net present value of today's dollars, especially given the uncertainties involved with changes in the interest rate. On the one hand, the value of future dollars (i.e. today's dollars saved) is eroded by inflation, so a lower interest rate is detrimental to NPV; on the other hand, higher interest rates mean more lucrative lending and
That is, if the interest rates rise to the point that the monthly mortgage payment does not cover the interest due, any unpaid interest will be added to the loan balance, so the loan balance increases. However, one also has the option to pay the minimum monthly payment, or the fully amortized amount due. The advantage of negatively amortizing loans is that one can control cash flow with a relatively
secondary mortgage market in detail. It puts light on the functioning of secondary mortgage market. It also discusses different tools that are used in this market and the benefits and drawbacks of this market. This paper also highlights some of the secondary mortgage market organizations and agencies. The evolution and growth of secondary mortgage market has also been discussed in this paper. The secondary mortgage market is a place where
So the main three players on the Australian mortgage market struggle to obtain larger market shares in the context of increasing the demand for loans. They make use of important loan discounts (which refer to decreasing the commissions/fees / and the interest rate for the mortgages), offer grace periods, and in some cases reduce the level of the documentation that has to be provided for the loan granting procedure. This
This is one of the biggest causes that contributed to the financial crisis. Where, the lack of ethical standards within the industry, helped to cause a number of executives from: loan officers to real estate appraisers, to engage in predatory and illegal lending tactics. Where, many would falsify the income, credit histories or out right lie to borrows about the mortgages they were receiving, along with the terms. This
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