1. The Governments Bank and the Bank for the Banks…
The Federal Reserve (1913)
The Governments Bank and the Bank for the Banks…

2. Structure of the Federal Reserve
The Federal Reserve – (President / BOG)
(FOMC / FAC)
12 Federal Reserve District Banks
Branch (District) Banks – Omaha
Individual Banks – Your Bank…

3. Board of Governors (BOG)
7 members
appointed by the President, with the consent of the Senate
serve 14 year, non-renewable terms, staggered
sets policy instruments other than open market operations
decides permissible activities of banks and holding companies

4. The Fed Chairman “Chief or President”
Important Chairs of the BOG (Federal Reserve) (4 Year Terms)
Paul Volcker
Alan Greenspan
Ben Bernanke –
Janet Yellen – 2014-

5. The Federal Open Market Committee (FOMC)
12 voting members -- 7 Board of Governors + 5 District Bank Presidents (19 members in all)
meet 8 times per year (more, if needed)
design monetary policy, by specifying Federal Funds rate
(FAC) Federal Advisory Committee

6. Federal Reserve District Banks
each bank exists within 12 districts within the US
holds deposits of Federal Government
collects economic data and does economic research
Insure the banks (FDIC)
performs check clearing services

7. Federal Reserve District Banks
----- Meeting Notes (11/5/14 11:40) -----

8. District Banks -- Administer Monetary Policy
conduct Discount Loans with banks within district
enforce reserve requirements for banks within district
hold reserves of banks within district
New York bank most important, open market operations done there

9. Federal Reserve Branch Banks and Member Banks
Branch (District) Banks -- serve as decentralized regulators, primarily for larger Fed districts in geographic size – More to the West – Omaha is the closest for us.
Private Banks – your bank!

10. How Independent is The Federal Reserve?
Structure implies considerable independence.
Federal Reserve is financially independent of the Federal Government’s budget.

11. Expansionary and Contractionary Policy
Expand $ - Recession / Unemployment
Contract $ - Inflation / Growth

12. The Fed’s Tools Open Market Operations The Discount Rate
Reserve Requirement
Interest Rate Bias
KNOW THESE VERY WELL!

13. Open Market Operations
Buying and Selling Bonds
Most used of the tools!
Expansion – Fed Buys Bonds
Contraction – Fed Sells Bonds

14. The Discount Rate The tool that’s in the news…
How much banks pay for $.
DR changes the interest rate.
Expansion – Lower the DR.
Contraction – Raise the DR.

15. Legal Reserve Requirement
The tool of last resort…
How much banks can lend out.
Banks can “create” money.
Deposit Multiplier 1/RR x Deposit
Expansion – Lower the RR.
Contraction – Raise the RR.

16. Interest Rate Bias One more tool… Use the media. Threaten or scare????
Contraction – May work.
Expansion – Probably not.

17. Time for a “POOP” quiz!!!
How well do you know the tools the FOMC uses to carry out Monetary Policy?

18. Quiz: (10 Pts.)
Congratulations! You have been appointed as a member of the FOMC. Using the indicators below describe in detail what type of monetary policy you would prefer or use and what tools, in order, you would use to carry out that policy. Use all the tools, explain how you would use them, and be detailed!
CPI: 3.7%
PPI: 6.8%
GDP: 5.1%
Unemployment: 4.9%
GOOD LUCK!

19. Quiz:
Congratulations! You have been appointed as a member of the FOMC. Using the indicators below describe in detail what type of monetary policy you would prefer or use and what tools, in order, you would use to carry out that policy. Use all the tools, explain how you would use them, and be detailed!
CPI: 2.1%
PPI: 1.9%
GDP: 1.7%
Unemployment: 7.9%
GOOD LUCK!

20. What would you do today?
Congratulations! You have been appointed as a member of the FOMC. Using the indicators below describe in detail what type of monetary policy you would prefer or use and what tools, in order, you would use to carry out that policy. Use all the tools, explain how you would use them, and be detailed!
CPI: 1.7% #’s as of Sept. 2014!
PPI: 1.6%
GDP: 2.3%
Unemployment: 5.9%
GOOD LUCK!