Strategic Business and Market Trends with RD Watkins
Federal Reserve Mandate and Tactics
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| Consumer Prices Before and After; the Federal Reserve Created in 1913 |
The Federal Reserve System acts as the central bank of the United States and "manages the economy" using inflation management tools. The private company was given special powers and duties by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.
Although they have four areas they are tasked with managing, we will discuss only one today. Here is a quote of that mandate from the mission statement on the Fed site, "conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates". Simply put, they control the interest rate and the money supply with the purpose to deliver "maximum employment" and "stable prices". How are they doing so far?
The tools they use are money supply, meaning printing or destroying dollars in circulation and raising and lowering the interest rates so businesses and consumers are encouraged to change their borrowing and spending habits.
Who’s Affected by The Fed Policies & Inflation?
Entrepreneurs and growing small to medium businesses make up the largest portion of the inputs to productivity. Centrally managing their ability to grow through Fed Policy has a global affect on GDP of a community or group of exchange partners. If you are living and doing business in an "industrialized nation" you are part of the G20 partnership of central bankers who have a similar mandate to the Federal Reserve and affect you.
• Entrepreneurs (business venture capital, CapEx costs, payroll)
• Small to Medium Business (credit, materials costs, payroll)
• Consumers (increasing cost of living, healthcare, retirement, insurance, decreased investment return)
What Trends Should Entrepreneurs Care About?
Business people of every size should have their eye on the changing or trending of markets as well as global policy makers like the Fed. You may think it’s a political thing, and it is but, that does not negate the fact it will affect you and preparation is the only prophylactic. If you are in business with a significant CapEx and asset purchase requirement, the PPI and CPI are to be closely monitored. These are the first place federal agencies begin letting the “cat out of the bag” that inflation is increasing. Closer to home, just watch gasoline prices and consumer goods. You family grocery & utilities bills will likely indicate much more than you give them credit for.
Related Links to Use as an “Inflation Dashboard”:
• PPI Chart Link (supplied by seekingalpha.com)
• CPI Chart Link (supplied by forecast-chart.com)
• 10 Yr Gold Chart Link (supplied by kitco.com)
• Light Crude Oil (CL, NYMEX) Chart Link (supplied by futures.tradingcharts.com)
Strategic Changes to Your Business Plans
Now that you monitor inflation, what can you do when the trend turns upward? Use your common sense, your past inflationary experience, study and adjust your product or service lines to suit the inflationary environment. There are features of your business that suit this environment, expand those, and reduce those that are at risk. Hedge your bets to ensure not losing ground at a minimum. If your business as a whole is entirely at risk during inflationary periods (study history), then consider major changes or offsets to alternate sources of income and growth with a new business that thrives when inflation rises.
You, as entrepreneurs, are the primary driving engine of all economies globally, no matter what country you reside in. It is the central planners, who believe they can change the course of supply and demand to their will and purposes that are afraid of you. Observe and monitor trends, trust your instincts and be willing to modify your strategy and plans to mitigate the threats and exploit the opportunities they provide for those willing to live and do business in this ever-changing environment.
Chaos can be your friend if you follow the example of nature. Fires, earthquakes, tornadoes and man do damage to her everyday and yet, the tree bends, the seeds replant themselves and bloom and landscapes come to rest; always settling back to a state of equilibrium. That equilibrium state always has a trending element of growth in it, albeit a slow one. It is natural law; as dynamic and evolving beings we must grow and adapt or die and become extinct.
RD Watkins brings value and builds productive and collaborative relationships by "Applying Common Sense Project Management Principles in a Virtual World". He fills the role of Senior Project Manager, is a PMI certified PMP® (Project Management Professional) and holds CompTIA IT Project+™ credentials. You can connect with RD to discuss his capabilities in cost effectively managing and enhancing productive consensus on your virtual projects through his LinkedIn.com profile at http://linkedin.com/in/rdwatkins or contact him via email at rd@rdwatkins.com.
For more information, please visit RD's TNNWC Bio.
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