Imagine you are the chief financial officer (CFO) of the Fortune 500 company you chose in Module One (JPMorgan Chase & Co., AT&T, or Qualcomm). I chose AT&T. Given the positive macroeconomic trends, including improvements in labor market conditions, the Federal Reserve recently increased the federal funds rate. With the continued improvement in economic outlook, the Federal Reserve is poised to increase the federal funds rate again in the near future. The Fed believes that with the gradual increase in monetary policy, the economic activities and labor market will strengthen and inflation will remain consistent. As the CFO of your company, you must analyze and evaluate the likely impacts of the aforementioned Federal Reserve monetary policy actions to the wider economy (and specifically, to capital markets), as well as the resulting implications for your firm. Based on your assessment, you will put forth various recommendations to the company’s board for improving their financial position while safeguarding against corporate risk.
Prompt
This milestone will help you complete Section III of the final project by identifying the role, functions, and operational mechanics of the Federal Reserve System. You will also discuss the Federal Reserve’s impact on capital markets.
Your work must address these critical elements:
The Federal Reserve System
Illustrate the primary role and functions of the Federal Reserve System using specific examples. For example, what are its key macro-activities and their economic consequences?
Explain the operational mechanics of the Federal Reserve System in terms of its structures and governance using specific details. In other words, how does the system work on a day-to-day basis?
Illustrate the potential for the Federal Reserve’s monetary policies to impact capital markets using specific examples. For example, how can the Federal Reserve “make waves” in capital markets through their communications or lack thereof?