1. Federal Reserve and Macroeconomic Policy
Monetary Policy
Federal Reserve and Macroeconomic Policy

2. History of the Fed Created by Congress in 1913 Nation’s Central Bank
Response to bank failures and panics
Main Job: Conduct monetary policy
Regulate amount of money in economy
Promote economic growth  Full Employment
Limit inflation
Other jobs
Make and enforce rules for banks
Financial services (ex. Check clearing)

3. Structure of the Fed Board of Governors: Run the Fed System
7 Governors, 14 year terms
Chairman selected from board (Ben Bernanke)
Appointed by President, confirmed by Senate
Federal Open Market Committee (FOMC)
Federal Reserve Banks (12)

4. Monetary Policy Conducted by FOMC Open Market Operations
Affects Federal Funds Rate
Buying and selling government securities (bonds)
Buying securities Increases money supply banks have more money to lend lower interest rates consumers and businesses borrow and spend more fights unemployment and recessions
Selling securities Decreased money supply fight inflation
Current Fed Funds Rate = approximately 0 %

5. Other Monetary Policies
Discount Rate changes
Interest rate Fed charges banks to borrow money from the Fed
Current Discount Rate = .75%
Reserve Requirement changes
% of deposits banks must hold
3% for banks with $10-$55 million
10% for banks with over $55 million

6. “Easy Money” Monetary Policy
Fight Recessions, Unemployment
Open Market Operations
Buy government securities from banks
Lower Fed Funds Rate
Lower Discount Rate
Lower Reserve Requirement

7. “Tight Money” Monetary Policy
Fight Inflation
Open Market Operations
Sell government securities to banks
Raise Fed Funds Rate
Raise Discount Rate
Raise Reserve Requirement