Predicting the future course of Fed policy
Suppose the Fed's Beige Book reported that "in South Florida, bookings for the summer tourist season were off to a slower start than last year" and that "tourist counts and revenues were down in Hawaii and Las Vegas and at destinations such as golf schools and luxury resorts in the inter-mountain states and along the West Coast."
If this information reflects nationwide consumer choices regarding discretionary income, what would you predict about the future course of Fed policy regarding interest rates?
Would your prediction change if you believed that slower travel activity was the result of higher gasoline or other transportation costs?© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/economics/macroeconomics/predicting-the-future-course-of-fed-policy-28i
...ntive to save in two opposite ways. On the one hand, a higher interest rate means that saving today will have a larger payoff in the future, in terms of a travel package the accumulated saving will be able to buy. This greater future reward for saving tends to make people more eager to save when the interest rate is high.
On the other hand, a high interest rate means that less savings has to be done today to achieve any future savings target, for example to ...