Macroeconomics Spring 2014 Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” 卜安吉

March 4, 2014Macroeconomics, Fed2 Money

March 4, 2014Macroeconomics, Fed3 The Fed What are the three components of the Fed organization? What are the three components of the Fed organization? –The Governors –The Federal Reserve Banks –The Federal Open Market Committee “The Fed” is the Central Bank (CB) of the U.S.A.

March 4, 2014Macroeconomics, Fed4 Three Tools of the Fed (CB) 1.Open Market Operations 2.Discount Rate 3.Reserve Requirement Bernanke, Chair Yellen, Vice Chair Stein Duke There are 7 Federal Reserve Board Governors: Tarullo Bloom Raskin Powell

March 4, 2014Macroeconomics, Fed5 1. Open Market Operations Federal Open Market Committee (FOMC) Federal Open Market Committee (FOMC) –The 7 Board of Governors (usually) –New York Fed Bank President –4 other Presidents of the 11 other Fed Banks Buy and Sell U.S. Treasury Bills (Notes and Bonds too but mostly Bills) Buy and Sell U.S. Treasury Bills (Notes and Bonds too but mostly Bills) –Their actions decrease/increase the interest rate (respectively). – called open market operations

March 4, 2014Macroeconomics, Fed6 2. Required Reserve Ratio Set by the Governors – the Reserve Ratio is the percentage of checkable deposits that must be kept at the Federal Reserve District Bank in their District as cash. The effect is that the cash is not available for banks to loan out.

March 4, 2014Macroeconomics, Fed7 3. Discount Window The Discount Window is not a physical place but means that commercial banks may borrow from the Fed at the Discount Rate. The Discount Window is not a physical place but means that commercial banks may borrow from the Fed at the Discount Rate.

March 4, 2014Macroeconomics, Fed8 3. Discount Window  The “lender of last resort” function.  The legislation in 1913 created the Fed in 1914, not in the constitution.  Lending to banks was the central bank’s only role.

March 4, 2014Macroeconomics, Fed9 The Federal Reserve System The Board of Governors The Board of Governors The Fed Banks The Fed Banks The Federal Open Market Committee (FOMC) The Federal Open Market Committee (FOMC)

March 4, 2014Macroeconomics, Fed10 The Fed: The Board of Governors

March 4, 2014Macroeconomics, Fed11 The Fed: The Fed Banks The Twelve Federal Reserve Districts – The Fed Banks

March 4, 2014Macroeconomics, Fed12 The Fed: The FOMC   The FOMC:   The Seven Governors, New York Fed President and 4 other Fed Presidents – 12 total members   Set Monetary Policy for the United States   In other words, the FOMC sets the “Federal Funds Rate” – The interest rate that banks borrow funds from each other   The “Fed Funds” rate determines the “Prime” rate or the interest rate that banks charge their “best” corporate customers   An Increase in the fed funds rate means borrowing is more “expensive.”   A decrease?

March 4, 2014Macroeconomics, Fed13 The Fed: The FOMC 2012 Members of the FOMC 2012 Members of the FOMC Members Members –Ben S. Bernanke, Board of Governors, Chairman Ben S. BernankeBen S. Bernanke –William C. Dudley, New York, Vice Chairman William C. DudleyWilliam C. Dudley –Elizabeth A. Duke, Board of Governors Elizabeth A. DukeElizabeth A. Duke –Jeffrey M. Lacker, Richmond Jeffrey M. LackerJeffrey M. Lacker –Dennis P. Lockhart, Atlanta Dennis P. LockhartDennis P. Lockhart –Sandra Pianalto, Cleveland Sandra PianaltoSandra Pianalto –Jerome H. Powell, Board of Governors Jerome H. PowellJerome H. Powell –Sarah Bloom Raskin, Board of Governors Sarah Bloom RaskinSarah Bloom Raskin –Jeremy C. Stein, Board of Governors Jeremy C. SteinJeremy C. Stein –Daniel K. Tarullo, Board of Governors Daniel K. TarulloDaniel K. Tarullo –John C. Williams, San Francisco John C. WilliamsJohn C. Williams –Janet L. Yellen, Board of Governors Janet L. YellenJanet L. Yellen Alternate Members Alternate Members –James Bullard, St. Louis James BullardJames Bullard –Charles L. Evans, Chicago Charles L. EvansCharles L. Evans –Esther George, Kansas City Esther GeorgeEsther George –Eric S. Rosengren, Boston Eric S. RosengrenEric S. Rosengren –Christine M. Cumming, First Vice President, New York Christine M. CummingChristine M. Cumming Meeting: Today still % ff rate?

March 4, 2014Macroeconomics, Fed14 The Fed: The Chairman Ben Bernanke Where is it today?

March 4, 2014Macroeconomics, Fed15 Fed Funds Rate Historically