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The Iowa Electronic Markets
Predicting Federal Reserve
Policy
Federal Reserve Policy Assignment
Part 1: Summarizing Current Economic Conditions
DUE:
General Instructions for Completing this Assignment
Please follow the guidelines below as you work on this assignment.
1. This is a multi-part assignment. Each part of the assignment must be typed. Label
clearly each part of the assignment with a cover page giving your name and section
number.
2. Complete each part in a separate section clearly labeling them Part 1, Part 2, etc.
3. Within each section, give the requested information, including sources of information
gathered.
4. Turn in your completed assignment to your instructor on the date it is due.
Goal: Part 1
In this assignment, you will learn to combine economic data with economic theory to
summarize and illustrate current economic conditions in the economy.
Summarizing Current Economic Conditions Based on Economic Data
The first step in this assignment is to collect data and information on various measures of
economic activity in the economy. Recent statistics on the unemployment rate, inflation rate,
interest rates, wages, consumer spending, and real GDP will give you some feel for how the
economy is currently performing. These statistics are often called “economic indicators”
because of their ability to “indicate” the overall health of the economy. In addition to the raw
data, it is useful to find out what other economic analysts (economists) are saying about the
performance of the economy. Much of this information is available on the Web. Some useful
starting points are provided below.
Use the data and information you collect to summarize the current state of the
economy in 1-2 typewritten pages. The summary should provide the reader with a general
overview of recent trends in the economy, as well as current economic conditions. Be sure to
include a summary of (1) real GDP, (2) the Consumer Price Index and inflation rate, and (3)
the unemployment rate, along with any other economic indicators that you believe help to
illustrate the current health of the economy.
Note: This is precisely what the Federal Reserve does before each Federal Open Market
Committee meeting. It summarizes the economic conditions in each of the Federal Reserve
districts and publishes the summaries in a publication called the “Beige Book.” The Federal
Reserve’s most recent Beige Book is available online at
http://www.bog.frb.fed.us/FOMC/BeigeBook/2000/default.htm
As you collect data and read economic analyses, keep the following questions in mind:

What are the current rates of inflation and unemployment? Compared to the past year,
have they been increasing or decreasing?

Have overall economic conditions changed recently? In what way?
Some Starting Points For Finding Economic Information
ECONlinks: Economic Indicators
http://www.ncat.edu/~simkinss/econindicators.html
Provides links to current data on a variety of economic indicators.
The Dismal Scientist
http://www.dismal.com/isapi/dismalhome.dll
Current data and commentary on the economy.
Economic Analysis and Research from Bank of America
http://corp.bankofamerica.com/research/e_economic_analysis___research.html
Commentary and economic analysis on current economic trends in the U.S. economy.
Economic Information from First Union Bank
http://www.firstunion.com/library/econews/
Reports on current economic conditions.
ECONlinks Business News
http://www.ncat.edu/~simkinss/businessnews.html
Links to business information provided by major U.S. news providers
Dow Jones News Services
http://dowjones.wsj.com/n/economy.html
Up-to-date information on the economy.
Relating Current Economic Conditions to Economic Theory using the AD/AS Model
Based on your results above, use the aggregate demand / aggregate supply model to
illustrate current economic conditions (and changes in those conditions). Be sure to indicate
whether you believe the economy is operating below the economy’s full employment level of
real GDP (potential GDP), at the economy’s full employment level of real GDP, or beyond the
economy’s full employment level of real GDP. Include evidence from the data and
information you gathered from the Web to support your claims. Be sure to include references
to any data or information that you use.
Federal Reserve Policy Assignment
Part 2: Forecasting Federal Reserve Policy
DUE:
Goal: Part 2
In this part of the assignment you will produce a forecast of future Federal Reserve policy
based on current economic conditions, past Federal Reserve policy actions, and the Federal
Reserve’s current policy goals and objectives.
Before You Start:
Read the Appendix to this Assignment, “Introduction to the IEM and the FedPolicy
Market,” to familiarize yourself with the contracts that are offered in the IEM FedPolicy
market. The prospectus for this market, along with other information related to the
FedPolicy market is available at
http://www.biz.uiowa.edu/iem/markets/fedpolicy.html.
Summarizing Recent Federal Reserve Policy
a. Visit the Board of Governors Web Site to obtain a copy of the minutes of the most
recently available FOMC meeting (http://www.bog.frb.fed.us/fomc/). What is the date of
this meeting? (Note: The Federal Reserve makes available the minutes of their FOMC
meetings with a one meeting lag.) Provide a brief (one page) summary of the Federal
Reserve’s view of economic conditions at the time of that FOMC meeting, the FOMC’s
policy action at that meeting, and their view of likely future Fed policy actions.
b. Visit the Board of Governors Web Site to obtain a copy of the “Press Release” from the
most recent FOMC meeting
(http://www.bog.frb.fed.us/boarddocs/press/BoardActs/2000/). Look for the most recent
“FOMC Statement/Announcement” on this Web site. When did the FOMC last meet?
What policy actions did the FOMC take at this meeting and what reasons did they provide
to justify their position?
Forecasting Future FOMC Policy Actions
When is the next FOMC meeting? How have economic conditions changed since the two
most recent FOMC meetings and how are these changes likely to affect Federal Reserve
policy actions at the upcoming FOMC meeting? Describe briefly, based on current Federal
Reserve policy goals, recent Federal Reserve policy actions, and your summary of economic
conditions from Assignment 1. Use aggregate demand / supply analysis to illustrate recent
changes in economic conditions and use this as the basis for your prediction of future Federal
Reserve policy actions. What policy actions should the Federal Reserve take to meet its
current policy goals and objectives? In particular, should the Federal Reserve raise, lower, or
keep the federal funds rate the same at its next FOMC meeting? Explain.
Given your analysis, what FedPolicy contract should you buy on the Iowa Electronic
Markets? Go to the FedPolicy market on the IEM. What are the current BID prices for the
contracts listed there? Are these prices consistent with your analysis? Explain. What new
information about the economy would cause you to change your forecast (and hence your
recommendation about which contract in the FedPolicy market to purchase)? Explain.