On Bauer Business Focus—A conversation about the Federal Open Market Committee’s announcement to end the bond buying program with Houston Public Media News 88.7 Business Reporter Andrew Schneider.
The Federal Open Market Committee (FOMC) announced Oct. 29 their decision to end federal bond buying as labor market conditions improve, emphasizing solid job gains and lowered unemployment rates.
Beverly Barrett, clinical assistant professor of finance at the C. T. Bauer College of Business at the University of Houston, teaches the Intro to Global Business course, mandatory for all Bauer students. Barrett stopped by Bauer Business Focus to discuss how the end of the FOMC’s 2012 bond buying program will reinforce certainty in the U.S. economy and its impact, both locally and globally.
In the last few days, the financial markets have been significantly less volatile compared to recent months in anticipation of the FOMC’s announcement ending the third round of quantitative easing.
“Markets are naturally more volatile this time of year, but the fact that the Fed stayed the course [to end bond buying] should even be a reassurance to the markets as they factor in a level of new normal,” Barrett said. “Their staying in line, ending the program today, really confirms their intention to move to normal levels of interest rates once they see that there’s a healthy level of inflation in the economy.”
According to Barrett, a healthy level of inflation is approximately two percent inflation growth, which gives producers incentives to sell for slightly more than what they paid for inputs.
“Inflation has been around one percent in recent months and with the drop in oil prices down 20 percent over the last three months, that will have a downward pressure on prices. So any price increase we’ll see will be because of the increased economic activity through increased employment as the unemployment rate continues to lower.” Barrett said.