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When I first decided to take this class I felt there was not much that when into the predictions of stock prices and the future of your economy. It is clear now that there are at least six different factors that contribute to the movement of our capital markets. At the present time our market is in what the experts call a correction period which means that it has fallen at least ten percent from a record setting date. Our economy is mist of a record boom of a one hundred and seven months. Experts a predicting the worst like they have the last twenty-four months or so. So I am going to make a prediction that the economy will continue to grow at a rate of 3. 5 % maybe not at the same rate as last year.
The Federal Reserve is trying to slow the growth by raising rates by a quarter of a point. The rational for this is that the economy is growing at a rate that can spark inflation soon. So far the prior four times the Federal Reserve has raised rates not much has happened. I am predicting that if the current rate hike does not effect the market, Federal Reserve Chairman Alan Greenspan will raise rates again in March and May to slow our prosperous economy. The reason why a rate hike will slow down the economy is by raising the overnight rate to 5. 75, the highest since 1995, it has made borrowing less attractive. In turn, corporation will have less money to invest then productivity will go down, hence supply will go down and demand will soon follow.
Right now though productivity numbers released in January showed that it is on the rise, which has keep inflation in check. As productivity is on the rise, corporations are going to require more labors. Unemployment is at an all time low of 4 % and is not expected to increase much this year, levels are predicted to be between 4. 0 - 4. 25 %. The rise in labor productivity will lead to less unemployment, which leads to a higher economic capacity and more money circulating in the market.
With a rise in capacity there will be a rise in supply. Corresponding with this rise in supply there will be more money circulating there will be a rise in private domestic demand. If the production level falters a little bit it could cause an inflationary period in the United States. This is what the Federal Reserve is scared because at the current rate it will difficult for corporations to continue increasing production because workers will begin to ask for higher salaries and wages and corporations will not be willing to increase pay. In turn people will be fired or they will quit causing a downward spin.
At this point although there is no evidence of this having and the Federal Reserve is doing all it can to prevent this. Another important factor to predict the condition of our economy in April is the current situation of oil prices. Current oil prices have almost tripled since December 1998 when it was around $ 10 a barrel now the market cost of a barrel of oil is around $ 30. By April I am expecting to see prices around $ 20 - 25 a barrel. The reason why oil prices of risen so dramatically is because the OPEC has an agreement to control the quantity of oil extracted in fear of "global oil glut." The United States was debating the idea of selling its reserve supply in attempts to lower prices.
Mr. Greenspan did not agree with this idea saying that it would be ridiculous to believe that the United States reserve supply could really have a significant long term impact on world supply. President Clinton is meeting with OPEC officials to discuss their options. One option President Clinton will rise is to rise production of oil not to level were price will return to $ 10 a barrel but to a level were prices will lower to a point were smaller economies will not collapse.
Right now production levels are set at five million barrels a day the United States would like to see them increase that level to about seven million barrels a day. The problem with high oil prices is that it can lead to the slowing of the World economy. That will eventually lead to high World inflation, slowing foreign investment in the United States. The major effect oil prices can have on the United States is not a large as smaller less developed counties whose economies are dependant upon crude oil. The economy in the United States is more dependent on technology and finical services. The reason why the United States in interested in how other countries are doing financially is because they are major investors in the United States capital markets.
The European, Asian and Latin American markets are in a recovery period meaning that they are more likely to invest. If something does not happen to the oil prices before summer it could seriously effect the recovery of these major foreign markets. Bibliography:
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Research essay sample on Federal Reserve Oil Prices
