Macroeconomics Spring 2014 Dr Andrew L H Parkes

Macroeconomics Spring 2014 Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” March 4, 2014 Macroeconomics, Fed 卜安吉

Money March 4, 2014 Macroeconomics, Fed 2

The Fed n What are 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, 2014 Macroeconomics, Fed 3

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

1. Open Market Operations n 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 n 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, 2014 Macroeconomics, Fed 5

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, 2014 Macroeconomics, Fed 6

3. Discount Window n The Discount Window is not a physical place but means that commercial banks may borrow from the Fed at the Discount Rate. March 4, 2014 Macroeconomics, Fed 7

3. Discount Window Ø The “lender of last resort” function. Ø The legislation in 1913 created the Fed in 1914, not in the constitution. Ø Lending to banks was the central bank’s only role. March 4, 2014 Macroeconomics, Fed 8

The Federal Reserve System n The Board of Governors n The Fed Banks n The Federal Open Market Committee (FOMC) March 4, 2014 Macroeconomics, Fed 9

The Fed: The Board of Governors March 4, 2014 Macroeconomics, Fed 10

The Fed: The Fed Banks The Twelve Federal Reserve Districts – The Fed Banks March 4, 2014 Macroeconomics, Fed 11

The Fed: The FOMC Ø The FOMC: Ø The Seven Governors, New York Fed President and 4 other Fed Presidents – 12 total members Ø Set Monetary Policy for the United States Ø In other words, the FOMC sets the “Federal Funds Rate” – The interest rate that banks borrow funds from each other Ø 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. ” Ø A decrease? Ø March 4, 2014 Macroeconomics, Fed 12

The Fed: The FOMC n n 2012 Members of the FOMC Members – – – n Ben S. Bernanke, Board of Governors, Chairman William C. Dudley, New York, Vice Chairman Elizabeth A. Duke, Board of Governors Jeffrey M. Lacker, Richmond Dennis P. Lockhart, Atlanta Sandra Pianalto, Cleveland Jerome H. Powell, Board of Governors Sarah Bloom Raskin, Board of Governors Jeremy C. Stein, Board of Governors Daniel K. Tarullo, Board of Governors John C. Williams, San Francisco Janet L. Yellen, Board of Governors Meeting: Today still 0 - 0. 25% ff rate? Alternate Members – – James Bullard, St. Louis Charles L. Evans, Chicago Esther George, Kansas City Eric S. Rosengren, Boston – Christine M. Cumming, First Vice President, New York http: //www. federalreserve. gov/monetarypolicy/fomccalendars. htm March 4, 2014 Macroeconomics, Fed 13

The Fed: The Chairman Where is it today? Ben Bernanke March 4, 2014 Macroeconomics, Fed 14

Fed Funds Rate Historically March 4, 2014 Macroeconomics, Fed 15