Federal Reserve & Interest Rates

When it comes to accessing the economy, the Federal Reserve Board has to evaluate several different contributing factors.  Research is done on a continued basis throughout the year, and economic data is released generally on a monthly basis.  If there are any sharp turns in a given area of the economy, it signals the Fed to investigate the issue, and possibly take action.

The Real Gross Domestic Product, or GDP, is one of the measured indicators for the condition of the economy.  The GDP is The total value of goods and services produced within the borders of the United States.  This data is reported quarterly.  The GDP allows the Fed can monitor the trends in the overall economic growth, the unemployment rate, and the rate of inflation.  This data helps determine the efficiency of current monetary policy.

Another economic factor is the Consumer Price Index, or the CPI. The CPI is designed to measure the change in price of a fixed market basket of goods and services. “The market basket of goods and services is representative of the purchases of a typical urban consumer. The index is intended to measure pure price change only.”

Data calculating the CPI is released on a monthly basis. The rate of change of the CPI is a vital measure of inflation.  If inflation accelerates or decelerates significantly, there is often a change made to monetary policy to steady the rate.

Non-farm Payroll Employment is yet another economic measuring tool.  It is an estimate of the number of payroll jobs at all non-farm businesses and government organizations.  This also reports the average number of hours worked per week and hourly and weekly earnings.  The non-farm payroll employment reading is reported monthly.

This report is an indicator of the supply and demand conditions in labor markets.  It also helps determine the pace of overall economic growth at the present time and possibly the future.

There is also something called the Advance Durable Goods Shipments, New Orders and Unfilled Orders that is recorded every month.  This economic reading contains data on shipments,
new orders, and unfilled orders for things like primary metals, fabricated metals, electric generating equipment, non-electrical machinery, information processing equipment, and transportation equipment, including civilian and military aircraft and ships, trucks, and automobiles.

If there is a rise in orders and shipments, that signifies that demand is strengthening.  If demand is strengthening, then it is likely that employment and production will also increase.  If there is a decrease in orders and shipments, the opposite may be true.  This may also be an indicator of future business investment opportunity.

There are still more important economic measures that are taken that signal the Federal Reserve on the nation’s overall economic performance.  The stock index, housing starts, industrial production, retail sales, business inventory, and the yield on Treasury Bonds also play a major role in evaluating the state of the economy.

For more details on economic evaluation, visit the New York Federal Reserve education site.