Understanding Fed Interest Rate Hikes and Government Spending
by Eric Guerrero 10/20/23
A Global Superpower
The United States, a country of both great economic power and historical richness, presents itself as one of the world’s modern super powers. The US has unanimously won multiple world wars, a civil war, has persevered through multiple recessions and even pandemics like COVID-19. When times get tough, the US always has an answer for its people. The year 2022 however marked itself as one of the most important headwinds in modern economics. For the first time since 2015 the United States Federal Reserve Bank had started to raise the Federal Funds Rate meaning that all banks and financial institutions must follow a set interest rate.
For many alike this might have not been the best news. Following recovery from a government lockdown and economic downturn from the pandemic, consumers have put into question one economic metric that had been increasing, inflation. The Federal Reserve instilled the hikes in interest rates to combat rising inflation.
What would such a thing mean for consumers? Borrowing money now comes at an even greater cost, for businesses it may be harder to pay back any debts or to issue debt financing. What does this mean for the United States government? I, as a curious finance, accounting and data science student at the University of Colorado Boulder, had to dig a bit deeper into this curiosity to find out more because this question is not asked enough. I think it is pretty safe to say that the average person cannot not find or interpret government spending data quite easily.
Looking into government spending a bit deeper I thought it would be interesting to build off of some data I had been looking at in my Information Exposition class from the House of Representatives. After structuring some of my ideas of data exploration and exposition, I wanted to look specifically at the Office of the Speaker data. The Office of the Speaker data was interesting to me because of the influential role the individuals who work in this office play in facilitating key decisions made by the House of Representatives. The House of Representatives also collectively disperses a great amount of legislative power for the country.
So what did the data say about the Office of the Speaker across the timeline of the continuous hike in Federal Reserve interest rates?
I would first like to say what my initial hypothesis was for this data exposition. As mentioned before I thought that since inflation had been increasing off the cooling of the pandemic, the Office of the House would be spending more in total dollars per quarter. This initial hypothesis was based on a principle of macroeconomics, in which an increase in inflation results in entities having to spend more dollars to buy the same things. I was quickly surprised to find that this was not the case.
I was very surprised to find that the Office of the Speaker follows an interesting pattern in its total quarterly detail transactions. Quarters 1 and 3 follow lower spending patterns, at $1.9, $2 and $1.79 million dollars, then as for quarters 2 and 4, at $2.5 and $2.6 million dollars which follow higher spending patterns. The Office of the Speaker seems to be slightly unchanged in its spending pattern by the increases in Federal Funds rate and the rise in inflation. However, I found it most interesting that quarter 1 2023 actually had the lowest amount of total spending for the Office of the House at $1.79 million dollars. The “M’ shaped data could suggest that the spending is starting to go in a downward trend commonly referred to in the stock market as a bearish reversal pattern. Another interesting factor that could be a contributing factor is that the United States hit its debt ceiling during that quarter on January 19th.
Are there any divisions in the Office of the Speaker who do not follow a downward trend?
Seeing the pattern in the figure above did not quite satisfy my knowledge of economics and finance. I wanted to take a deeper dive into the quarterly spending data presented by the Office of the Speaker to see if specific divisions did follow my initial hypothesis. I found something appealing after grouping the Office of the Speaker data by its respective expenditure description, totaling these expenditures and then joining these quarterly amounts across all quarters since the start of the increase in Federal Funds rate. The Chief of Staff in the Office of the Speaker did have a more positive increase in its quarterly spending.
Are there any divisions in the Office of the Speaker who do follow this trend?
Other affiliate spending groups from the Office of the House that had decreasing spending patterns over the course of the quarters that I had looked were the amounts being payed out to the House of Speaker paid interns. The following visualization shows how the amounts in quarter 1 of 2022 payed out to interns decreased by the time it became quarter 1 again in 2023. This could potentially mean that the Office of the Speaker is having to cut back on other areas of spending like intern pay and allocate that spending to more important roles in the office such as the Chief of Staff in the midst of more pressing economic times.
Inflation, Federal Funds Rates, and the Office of the Speaker Expenditures
All in all it is clear that the dynamics behind the spending seen at the Office of the Speakers is changing across the timeline of increasing Fed Funds rates. Spending as a whole may be in line to be decreasing over the course of future quarters but as of right now it is pretty consistent with previous quarters. Spending is being allocated to more efficient and important areas like as seen with the Cheif of Staff and intern divisions. The United States government and offices like the Office the Speaker are utilizing a shifting of costs strategy to implement tactics to cope with rising inflation, interest rates, and rising economic uncertainty.
