Economic Indicator AnalysisAnalyzing the dynamic relationships between Fed speeches, and various economic data

James RansomSeun AboderinScott Babbitt

Agenda● Project Goal and Topic● Key Terminology● Analysis

○ Economic Indicator Numbers○ Fed Fund Rate○ Greenspan, Bernanke, & Yellen

● Summary

Project Goal● Application

○ Utilize Data Science to analyze large structured/unstructured datasets

● Goal○ Compare Economic Climates under current and previous Fed Chairmans

■ Gather Federal Fund Rates■ Analyze Speeches

Janet YellenBen BernankeAlan Greenspan

Why is this important?● Wall Street Traders

○ Use speeches → listen to key indicators○ Predict the next moves

■ Fed■ Economic Indications from speeches

● Consumers ○ The lower the interest rate, the more willing

people are to borrow money to make big purchases, such as houses or cars.

Key Terminology● Fed Fund Rate● Inflation● Unemployment Rate● West Texas Intermediate● Housing Starts

Fed Fund Rate● Interest Rate at which depository institutions lend reserve balances to other depository

institutions overnights on uncollateralized basis○ ^ rate, ^ expensive to borrow○ Determines all other interest rates in US economy○ Since Housing Bubble burst → Target Rate: 0-.25%

● Federal Open Market Committee (FOMC)○ Fed’s primary monetary policymaking body○ Uses Open Market Conditions to set desired target of the rate

Inflation● Rate at which, generally speaking, prices rise → Currency falls.● Central banks attempt to limit such, and avoid deflation

○ Smooth Economy

● Fed’s Monetary Policy Goals○ Promote stable environment:

■ Moderate long-term interest rates■ Price Stability■ Max. Employment

Unemployment Rate● % of labor force unemployed, but actively seeking

West Texas Intermediate (WTI)● Light, sweet crude oil

○ “Sweet” = .24% sulfur○ Lower than North Sea Brent Crude

Housing Starts● Number new residential construction projects during any months● Critical indicator of economic strength

The Analysis1) Gather Monthly Important indicators Since 1/20002) Correlation and Multiple Regression Analysis

Federal Fund Rate Analysis● Data Set Information

○ Average: 1.82○ Median: 1.00○ Range: 0.07 - 6.54○ Mode: 0.09

Mining for Gold!Text mining, also referred to as text data mining, roughly equivalent to text analytics, is the process of deriving high-quality information from text. High-quality information is typically derived through the devising of patterns and trends through means such as statistical pattern learning.

Text mining: Fed transcripts, statements, Beige books, and minutes

- over 100 official fed documents related to economic outlook from January 2004 to September 2016

Key FindingsKey findings: Overall the general fed speech was similar across the board. The words “Market” and “Rate” word the most frequently used words.

“Will” and “think” were also used in high frequency

Overview● Different Economic Situations → Different Outcomes

○ Pre and Post Housing bubble burst○ Global economy

● Differing strategies concerning economic growth○ Doves vs. Hawks○ President