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FOMC PROJECT

The Federal Open Market Committee (FOMC) voted on Thursday, 17th September 2015

to leave borrowing cost at their current record low of zero to 0.25%. The reason for this was as a

result of worries about the global economy, financial markets volatility and a sluggish inflation

at the US economy. FOMC however hinted at a possibility of a modest policy tightening in the

near future. The recent fall in the United States stock prices and a rise in the value of the dollar

were already tightening the financial market conditions regardless of what FOMC decides to

undertake. These influence of risky assets markets coupled with foreign markets were therefore

central in its decision making process.

The major variables employed by FOMC include capacity utilization, labor market

indicators, inflation trends and inflation expectations hence the reason for not increasing the rates

up. The impact of this decision saw stock markets drop sharply across the globe with the Wall

Street sell off resulting into Dow Jones industrial average falling by 255 points or 1.5% on

Friday to 16,418 at the opening. Investors were unsettled by the dovish comments by the chair of

the Federal Reserve Janet Yellen on Thursday night.

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Previously the markets had a positive look but presently it finds itself under pressure with

global growth concerns weighing on sentiments. Yields on the 3 month Treasury Bills remained

with little change after dropping on Thursday but the federal reserve statement was good for the

10 year Treasury Note Yield that built on the Thursday gain. Prices for the long term US

government bond rose on Thursday while short term notes dropped