Federal Reserve Interest Rates, 1954-Present

The Problem

Why Interest Rates Matter:

Interest rates are at the center of all financial transactions.

They impact the economy by influencing:

  • Stock and Bond Interest Rates
  • Consumer and Business Spending
  • Inflation
  • Recessions
  • Unemployment

The Federal Reserve’s Role:

The Federal Reserve adjusts the federal funds rate, or the interest rate at which banks borrow money. The fed funds rate is generally referred to as an indication to the rise or fall of other interest rates. The Federal Reserve’s goal is to watch for indicators of inflation in order to adjust the fed funds rate to control prices.

In summary, the higher the interest rate, the more expensive it is to borrow money, and the more expensive it is to borrow money, the less money people spend.

Source: Investopedia- Interest Rates Affecting Markets

Proposed Methodology

Data Sources: The data set is composed of statistics provided by the Federal Reserve Bank of St. Louis’ Economic Data Portal, the US Bureau of Economic Analysis, and the US Bureau of Labor Statistics.

What the Dataset Measures: The data analyzes changes in the following variables every month from July of 1954 through March of 2017:

  • Federal Funds Target Rate (including upper and lower target rates)
  • Effective Federal Funds Rate
  • Percentage Change in Real GDP
  • Unemployment Rate
  • Inflation Rate

Source: Kaggle

Proposed Analytic Tools and Processes

Using descriptive, exploratory, causal, and predictive analysis, I’d like to determine the extent to which changes in interest rates directly correlate with changes in unemployment, GDP, and inflation. Given the patterns provided in the data, I’d like to notice any seasonality associated with the data points, while accounting for important historical changes within the US economy and the Federal Reserve.

A few of the time periods I would like to consider in my analysis:

  • The Dot-Com Bubble, 1995 - 2001
  • The “Great Recession”, December 2007 - June 2009
  • The Dodd-Frank Wall Street Reform and Consumer Protection Act, July 2010

The “So What?”"

The data were compiled with the intention of addressing the following questions:

  • How does economic growth, unemployment, and inflation impact the Federal Reserve’s interest rates decisions?
  • How has the interest rate policy changed over time?
  • Can you predict the Federal Reserve’s next decision?
  • Will the target range set in March 2017 be increased, decreased, or remain the same?

Other implications for the information drawn from this data could include the observation of cyclical patterns for unemployment levels and inflation, further emphasizing the impact the Federal Reserve has on day-to-day life.