Trade The Journey

Trade The Journey

The Federal Reserve

Hopefully my last post inspired you to check out the Federal Reserve and if it did not, I suggest you visit the Federal Reserve websites. Websites?

Yes, there is a Federal Reserve System but there also are 12 Federal Reserve regional banks around the United States. These sites have excellent options to learn about regional banks think about the various economies of the World.

There are various research papers as well as classes designed to educate the public on both personal and public financial measures. The market shakes when the Fed decides that it will take action whether it is to increase the supply of money or decrease the amount of money in circulation.

This fluctuation of the money supply can help to bring about recessions and spur times of economic improvement. As mentioned in the previous post, this a tremendous responsibility for the board of governors and the health of the economy is at stake. One thing I learned about the Federal Reserve this week is that they do not actually set the Federal Funds Rate. They do not decide the exact rate, they manipulate the money in circulation through supply and demand.

It simply sells bonds to add to its balance sheet to decrease the amount of money in circulation or buys bonds to increase the amount of money in circulation. This, in turn, affects the price of money (Interest Rates) which in turn affects us.

The markets often try to anticipate what the FED will do and it is in your best interest to do so as well.  Looking at the Personal Consumption Expenditures, Consumers Price Index, Producers Price Index, and Unemployment, to name a few, will give you an idea of what the FED will do in regards to rates.

One book I recommend to read alongside reading some of the FED’s research papers is, 101 Things Everyone Should Know about Economics. I highly recommend that you have some knowledge of economics before reading this book.

Of course, the Federal Reserve System is a lot more complicated than this but just getting started will put you ahead of the game.

Thoughts. Corrections?

Links:

www.federalreserve.gov

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