In business, two main factors affect its performance. These two factors are:
- Micro factors
- Macro factors.
Micro Factors
They are internal factors that the business or organisation has control over. They may choose to remedy the problem or cause the issue by trying to improve performance in the future.
Macro Factors
These are factors that are outside the management’s jurisdiction. These are external factors that the management has no power over and has to set policies and measures to adapt to the factors. There are multiple macro factors in the world that businesses must consider and work their way around. Some of the main macro factors that all business has to navigate through include the following:
- Government laws and policies. Every business must follow and respect these to avoid being sued and paying huge fines.
- Taxes may also lie on this macro factor considering that all organisations have to pay taxes to avoid being on the wrong side of the law.
- Shortages of resources required in production. These include supply chain issues, labour shortages, and raw material shortages.
- The environment around the business includes internal revolution and international conflict.
For the first time in a very long time, people cannot find a haven asset to invest in as the recession draws closer and closer. People before had the opportunity to draw their investment from other assets and invest in government bonds and precious metals. But in the current market, even these assets have been hit, and their prices are struggling. Although the effects on real estate are minimal, they are starting to look a bit wonky with time.
Federal Reserve
The common macro factor that is causing problems for assets all over the world is the Federal Reserve. This is the organisation in charge of laws and policies governing the American dollar. Considering that the dollar is the world’s de facto currency, their policies have international effects. The main problem causing all this is the money printing done during the pandemic. To solve the rising challenges, the Federal Reserve pumped trillions of dollars into the economy to stabilise it. Doing so led to a huge spike in money in the economies, which found itself in all types of assets.
Federal Reserve Measures
The Reserve is currently implementing measures meant to suck the extra money from the economy and the assets. Some measures are taken to solve this issue include:
Increasing the interest rate
This is meant to help sack the money pumped into circulation out of the economy. Many assets have been dropping in value since November 2021. This led the Chairman of the Federal Reserve, Jerome Powel, to announce that they would be increasing interest rates. Since then, investors have been focusing on the next step the Reserve will take to identify the news’s impacts on the market and make appropriate decisions. The information being produced by the Reserve has had both positive and negative effects on asset prices. The next Federal Reserve press conference is on 15th June 2022. Investors are waiting for the news, and people should expect some volatility after the announcement. Despite the Federal Reserve Press Announcement being the main macro factor affecting asset prices in the market, other factors determine asset prices. These factors include;
Inflation
The Federal Reserve changes the interest rates due to inflation in the economy. The organisation’s target has an inflation rate of 2% per annum. If inflation exceeds this amount, they increase the rates to reduce the money in circulation. Investors have a way to identify the inflation rate to plan for the next step in their business. They look for peak inflation when it has topped and will probably remain stagnant or reduced. This will probably lead to the Reserve reducing the interest rates to keep the market constant. Investors use the Personal Consumption Expenditure (PCE) to tell the market’s inflation condition. The next PCE report will come out on 30th June 2022 to help investors study the market and make appropriate decisions.
Factors that may increase inflation
These factors vary from internal factors to external factors that the government does not have control over. They include issues such as; the war between Ukraine and Russia causing oil and food shortages, Chinese cities lockdowns, and negative government policies in their countries affecting the American economy.
Employment
Employment rates in the country allow the Federal Reserve to play with its interest rates. Unemployment refers to the number of people actively looking for job opportunities unsuccessfully. The Federal Reserve targets a 4% unemployment rate in a country. When the Reserve increases interest rates, organisations might downsize and increase unemployment. When interest rates are reduced, they increase the employment rate. Currently, the unemployment rate is at 3.8%, which means that the Reserve can increase the interest rates to reach its target. Investors follow the Job Report to know which direction the interest rates might swing the next time.
