Mortgages and the Federal Reserve Coursework Example | Topics and Well Written Essays - 750 words

Mortgages and the Federal Reserve - Coursework ExampleThe prospective client must be on the lookout for events that result lead to lower mortgage engage order. He therefore needs to be equipped with the knowledge of how to forecast affair rates. An understanding of key economic indicators can provide clues to the future direction of interest rates. These indicators are usually published and are available to everyone. Based on Woodruff (2007), they are the followingGross Domestic Product (GDP) is the total output of goods and services produced by labor and property of a certain nation and are considered as the most important economic indicator published. An increasing trend could lead to inflation and make the Federal Reserve raise interest rates in order to slow growth. A negative growth would mean a weaker economy but is desirable because interest rates will be lower due to the need to stimulate commerce.Consumer Price Index (CPI) indicates the average change over time in the p rices paid by urban consumers for a fixed market basket of consumer goods and services. It is the leading indicator of inflation. If the CPI registers an increasing trend, inflation is likely and interest rates are likely to rise. The transposed is also true. Producer Price Index (PPI) is a family of indexes that measures the average change over time in the selling prices (from the sellers perspective) received by domestic producers of goods and services. High PPI is inflationary and leads to a decrease in bond prices and higher interest rates. The converse is also true.Employment Situation The payroll barter report involves data on employment, hours and earnings estimates based on payroll records of business establishments. It is also used to predict other important economic indicators such(prenominal) as Personal Income and Industrial Production. If the Payroll Employment registers a monthly increase or increasing trend, inflation is likely and could cause interest rates to rise . A smaller-than-expected figure causes yields and interest rates to fall.Employment Situation Information on the unemployment rate and the number of unemployed persons by occupation, industry, duration of unemployment, and a conclude for unemployment is published by the government and use as a lagging indicator. A declining unemployment rate is considered inflationary and causes interest rates to hike. The converse is also true. The conclude behind this is that as more people get employed, the more people are willing to compete for a property. Creditors find it as an opportunity to maximize sales. Consumer Credit data provides information on levels of debt for industries such as auto financing and commercial banking credit and is a good indicator of consumer spending. Although it is considered as having shortsighted impact on interest rates, it gives an idea on the degree of consumer spending.Housing Starts When housing starts to register a higher-than-expected increase, the eco nomy is registering positive growth but it is considered inflationary. This scenario leads to locomote in bond prices and yields and interest rates to rise. Likewise, decline or declining trend in housing activity slows the economy and can push it into a recession, make yields and interest rates to fall.