Report on Articles of the Beige Book

Essay by sweetestgracieUniversity, Bachelor'sA+, March 2005

download word file, 7 pages 4.8

In the summary I noted that there was a lot of fluctuation in the Districts. I believe through information I have read in the summary that the Fed will probably maintain the current interest rate. If they were to raise the interest rates then the lower markets would fall even more and the higher markets would start to fall. If they leave the rates where they are at then I believe that the economy would start to even out. There would eventually be more construction on commercial buildings and the residential would "cool off" as they say and things would start to even out. It would be a mistake to raise the interest rates right now. It is a crucial time and people are just now recovering from the storms and some from 9/11. There was a lot of damage done to the southeastern states and raising the prices would devastate them.

They would be struggling to get their lives back together.

Many articles say the economy is gaining momentum, strengthened by home building, shipping and the country's manufacturing sector. Most say that U.S. industrial production rose 0.3 percent in November, which was more than expected. Oil prices fell a very large amount at once and utility production fell more than expected. Industrial capability, put to use, rose to 77.6 percent, the greatest since May 2001 when it was 77.5 percent. Manufacturing was subtle last month by a decline in workers' hours and auto production, and utilities did not have a high demand for heating because of warmer than average weather. The outlook remains positive for U.S. factories because they are turning out more equipment and space hardware. They expect production to continue rising at a moderate pace. The consumer spending rose by 0.7 percent in large part because Americans' incomes rose by 0.6 percent. Americans' incomes have a large effect on the economy. If the income is rising then the economy is most likely going to rise. This income raise was the best in seven months. The Dow Jones industry rose because of relieved investor to 10,590.22, which was the largest closing this year since March.

The articles say that the Fed will probably raise the interest rates. It will be the fifth time this year, but the Fed does not was to let the rebounding economy trigger unwanted inflation. The jobs rose 2.7 million in the last 4 yrs. The fed does not want the market to go into inflation because of the increase in jobs and income. The rise in the interest rate would keep the inflation down and help to get the economy on a good path. The rebounds in manufacturing helped the job markets, but now there are shortages in workers for the companies. Economists say that because of the 0.7 percent jump in consumer spending, which account for two-thirds of the total economic activity, the consumers are getting a second wind. The rise of 0.6 in September combined with the 0.7 in November proves that the economy is on the rise. In my opinion, not based on an article, the reason that the consumer spending rose was the coming of Christmas. Everyone knows that around Christmas the consumer spending rises because of the time of the year. It is the season of giving and families are out shopping for their loved ones.

There has been a lot of pressure put on the Fed to raise the product prices. In 11 of 12 districts, businesses are almost begging for a rise in the prices. They have not reported that they are going to raise the prices, but it is likely. The overall economy grew 3.9 percent from July to September. Based on this, the Fed's will raise the prices for consumers. I do not believe that the prices should be raise because of the lower market which is still hurting. The upper-class individuals are doing fine and this is the market that wants to raise prices. If it is possible, I would say to raise the prices in the upper-class market and keep the prices the same in the lower. It would not hurt upper-class individuals to pay more, but the lower-class individuals are still struggling to buy what they need.

The Chairperson says that the interest rate will have to be raised at some point to keep inflation in check. The interest rates will most likely be raised in the first quarter of 2005 for the sake of keeping the economy from inflation hazards. The Chairperson's reasons are good, but they do not agree with mine. I believe that the Christmas season is the main reason for the increase in consumer spending. If the interest rates are raised then after the Christmas season the economy will go back down to normal and the economy will be hurting. Consumers do not like to deal with the raising and lowering of the prices in goods. If they maintain the same interest rates then the economy will go back to normal and everything will be fine. I believe that it is kind of stupid, for lack of better terms, for the Fed to base their observations for the next year on the season that is known to be the biggest spending season of the year. They may look at the whole last year, but are basing their opinions on the rise since September to current.

Consumer spending make up two-thirds of the economic activity; therefore, being the most important factor for their decision. If they were to raise the interest rate too much then the consumers would stop spending so much money and that would cause a depression. Depressions are very serious. Everyone knows about the Great Depression and no one wants to go through that again. There are not many of us that were alive during that time, but we all learned about it in history and some in economics. If they were to lower the interest rate too much it would cause inflation. If it stayed like that very long the American dollar would not be worth much anymore. Interest rate are a very important part of the economy, and to put interest rates into a well known saying, "they could make or break our economy."

Markets would be another big factor in the interest rates decision. The markets are where the consumers purchase their good. If the markets were to go down then the consumers would have nowhere to spend their money to raise the economy and it would be a disaster. There are so many different things that the Fed has to look at before they decide on where interest rates are going. Without taking either of these into consideration there would almost be no reason to even have the Fed decide. The economy would be running itself, and that would not be a good thing. Markets now want to raise prices on products because consumers are buying more products. It has a lot to do with supply and demand. If the demand is high then the prices will raise, if the demand is low then the prices will lower to move more products. Markets are trying to get the Fed to raise interest rate so that they can make more money because people are now willing to spend more money then they were at the beginning of last year.

Economists have a lot to think about. There are so many different things to consider that effect the economy. The major things as I stated above are consumer spending and markets. What is good for markets is not always the right thing for the consumers. Consumers are greedy and if they were to always do what the consumer wants then we would have a major inflation rate. Markets are more aware of the hazards of having low or high prices because they are generally more educated on the economy. The average consumer does not even know how the Fed's even decide the interest rates. The economists have to pick the perfect medium in order to keep the consumers and the markets in a decent range.

The company should finance and build the building this year. The interest rates are down and will not go down any further next year. The Feds are planning to raise the interest rates slightly next year and the company will have a higher interest rate next year. Based on what I discussed about the wise decision would be to build this year so the company will not have to pay as much in interest. The interest rates do not look as if they will be raised much, but just to be safe knowing that they are even raising them.

The economy is raising and that is the reason they have decided to raise the interest rates. Consumers are spending more money and consumer spending all together has raise 1.3 percent in the last four months. Districts are saying that it looks as if the consumers will continue spending money as they have been. If they do not raise the interest rates we will have an inflation period and that will not be good on the economy. Markets are supporting the Feds in raising the interest rates because they want to charge more for their products. The best way to say would be that the demand is getting higher than the supply so they have to raise prices to control the demand and supply for the goods.

The best recommendation I could give would be build this year to protect the company from spending more money on financing. You have read my reasons for my recommendation and I have researched this thoroughly. In this report I have given all of the reasons for the interest rate to rise and the Fed agrees that if not controlled it will become a problem.