How Economic News Affects Financial Markets

economic news

News of economic developments can have a major impact on financial markets. Keeping up with the latest news can help you stay on top of changes in interest rates, inflation and employment trends.

Economists use a variety of news-based models to measure economic activity. One model, developed by Prof Kelly at BU, uses a topic model to analyze business news and quantify the attention each theme receives over time.

GDP growth

GDP is the total value of goods and services produced by consumers, businesses and governments in an economy. It is one of the most important economic indicators and is used to measure a country’s performance in terms of growth or contraction.

It can be measured in ‘nominal’ or’real’ terms, meaning it includes changes in both the volume of production and prices. Real growth is more accurate than nominal because it takes away the effect of price levels.

Nominal GDP doesn’t adjust for inflation or the pace of rising prices, which can cause it to overstate a country’s growth. This is why policymakers and financial markets focus primarily on real GDP.

Critics of GDP argue that it doesn’t tell the whole story and isn’t particularly sustainable or environmentally friendly. Alternative measures have been developed that take into account a country’s environmental impact and also look at well-being, such as life satisfaction, health and relationships.

The Bank of England’s latest forecast for the UK shows that it expects GDP to grow by a much shallower rate than previously. This is in line with its expectations for other economies as the “massive energy price shock” continues to take a heavy toll on world growth.

Interest rates

Interest rates are a big part of our finances, but they can be confusing to figure out. The Federal Reserve sets interest rates for banks to control inflation, while boosting growth.

Higher interest rates can speed up economic growth, but they can also depress demand for consumer goods and services. The Fed’s goal is to keep the economy growing without causing recession or layoffs.

The Federal Reserve aims to achieve this through its monetary policy, which targets the federal funds rate. The federal funds rate is the rate that banks charge each other for overnight loans of federal funds.

The Fed has raised its federal funds rate six times this year. In December, it said it would raise its target for the federal funds rate to a range of 4.25% to 4.5%.


Inflation is a price increase over time that affects the purchasing power of one unit of money. It is also called the “silent thief” because prices rise over time and can lead to a decline in disposable income for consumers.

Inflation is caused by a change in the prices of products and services that people use for everyday living. This includes items like food, fuel, utilities and more.

It is usually viewed negatively because it leads to a loss in the purchasing power of money. This impacts the cost of living for consumers, which can slow down economic growth.

Inflation dropped in November, which is a good sign for the economy. It is lower than what was expected and indicates that the Federal Reserve’s aggressive rate-raising campaign is starting to pay off.


Employment is a big deal in any economy. Employees are a major contributor to the GDP and are often rewarded with benefits like healthcare, insurance and pensions. In the United States, there are a whopping 58 million workers in nonfarm payrolls, and more than half of those are employed full time.

The monthly jobs report is a must have for anyone involved in the economy, and the BLS releases it on a regular basis. It is a useful guide to the health of the American workforce, as well as a guide to how much employers have to spend on labor costs. The most lauded data point is the unemployment rate, which was at a relatively low 3% as of Q3 2022. The aforementioned report also includes other important metrics, including total hours worked and the number of part-time and temporary jobs. It may be hard to get a handle on the overall picture with a large number of data points in hand, but the numbers do add up over time.