zero interest rate policy in us
TRANSCRIPT
WELCOME TO OUR PRESENTATION
GROUP 10
TOPIC: INTEREST RATE POLICY IN US
CONTENT
I
II
III
The federal funds rate
The discount rate
The zero interest rate policy
I. The federal funds rate (FFR)
1. Definition
2. The features of FFR
3. How FFR works
I. The federal funds rate•The interest rate at which banks and other
depository institutions lend money to each other,
usually on an overnight basis. The law requires
banks to keep a certain percentage of their
customer's money on reserve, where the banks
earn no interest on it. Consequently, banks try to
stay as close to the reserve limit as possible
without going under it, lending money back and
forth to maintain the proper level.1.
Defintion
I. The federal funds rate
2. The features of FFR
FFR is determined by market. FFR is an important benchmark in financial
markets. The higher the FFR,the more expensive it
is to borrow money.
I. The federal funds rate3. How FFR works
II. The discount rate
1. Definition
2. The features of discount rate
4. How discount rate affects 3. How discount
rate works
II. The discount rate
1. DefinitionThe discount rate is the interest rate charged to
commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window.
2. The features of discount rate
The primary credit rate is the basic interest rate charged to most banks. It's higher than the Fed funds rate.
The secondary credit rate is a higher rate that's charged to banks that don't meet the requirements needed to achieve the primary rate.
The seasonal rate is for small community banks that need a temporary boost in funds to meet local borrowing needs
Primary
credit
Secondary
credit
Seasonal cr
edit
2. The features of discount rate
3. How discount rate works
When Central Bank wants to control the high inflation rate in the economy.
When Central Bank wants to increase growth rate in the economy.
II. The discount rate4. How discount rate affects
It affects credit card and adjustable-rate mortgage rates.
It affects all other interest rates.
It affects savings account and money market interest rates.
Fixed rate mortgages and loans are only indirectly influenced by the discount rate.
III. Zero interest rate policy (zirp)
1. Definition
2. Reality of ZIRP
3. Regular interest rate adjustments
III. Zero interest rate policy
• Zero Interest Rate Policy is the lowest percentage of owed principal that a central bank can set. In monetary policy, the use of a zero percent nominal interest rate means that the bank can no longer reduce the interest rate to encourage economic growth. As the interest rate approaches zero, the effectiveness of monetary policy is reduced as a macroeconomic tool.
1. Defintio
n
III. Zero interest rate policy2. Reality of ZIRPThe Federal Reserve sets short-term interest rates. Since
2009, the Federal Reserve has followed a zero interest rate policy (ZIRP) by keeping rates at almost exactly zero
III. Zero interest rate policy2. Reality of ZIRPThe chart shows the unemployment and inflation rate of US
from 2007 to 2014
III. Zero interest rate policy
the U.S. reached its lowest economic point following the financial crisis with inflation of -2.1 percent, unemployment at 10.2 percent and GDP growth plummet to -2.8 percent. Interest rates dropped to near zero during this period
Quantitative easing, inflation, unemployment and GDP growth reached 1.8 percent, 6.6 percent and 3.2 percent, respectively.
The federal funds rate would not fall within its current 0.00%-0.25% target range. unemployment running at 5.5%, the US labor market booming and an economy that is growing at around 3%
2009
2014
2015
III. Zero interest rate policy3. Regular interest rate adjustments
Short-term rates are raised to keep the economy from building too fast and risking inflation when the economy is growing.
Lower short-term rates when the economy is contracting or slowing.
cut short-term rates which is cutting the rate that banks charge each other to borrow money.
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