Corporate Economic Conditions Report 17 April 2013 | PepsiCo | SECTION 1: EXECUTIVE SUMMARY

Economic Conditions Overview:

Overall economic conditions are expected to improve over the next two quarters. As part of the monetary policy (quantitative easing part 3), Federal Reserve continues to buy bonds to influence low interest rates in order to increase investments. A decrease in unemployment and an increase in private consumption will drive the economic growth for the next two years.

Expected direction of change in economic aggregates:

The drivers for the major changes in the economy will be steady growth in GDP and the decrease in unemployment. Additionally inflation rates are forecasted to remain unchanged and
According to the data from Wall Street Journal (WSJ), inflation rates will flat at 2.1% through in 2013 and will gradually increase to 2.2% by end of 2014. Inflation has been low throughout the recession and recovery. Figure 3 shows the historical Inflation rates from year 2005 and the forecasted rates throughout 2014.

Figure 3: Inflation Rates Source: WSJ

INTEREST RATES

Interest rates in the United States are reported by the Federal Reserve and the benchmark interest rate was last recorded at 0.25%. Historically, from 1971 until 2013, the United States Interest Rate averaged 6.18% reaching an all-time high of 20% in March of 1980 and a record low of 0.25% in December of 2008.

Figure 4: US Interest Rate % Source: Federal Reserve

As interest rates increase, the cost of borrowing rises. Credit card companies will increase the rates they charge borrowers on amounts that are outstanding. A higher interest rate may mean an increase in monthly mortgage payments on variable rate mortgages and Home Equity Lines. In both