Policy Tools in the Federal Reserve System PDF

Structure and Board of Governors responsibility Seven members, including the chair, appointed by the president of the United States and confirmed by the Senate ( Federal reserve Twelve Federal Reserve Banks (FRBs) system) ? Each with nine directors who appoint president and other officers of the FRB...

Structure and Board of Governors responsibility Seven members, including the chair, appointed by the president of the United States and confirmed by the Senate ( Federal reserve Twelve Federal Reserve Banks (FRBs) system) ? Each with nine directors who appoint president and other officers of the FRB Member Banks Around 3,000 member commercial banks Federal Open Market Committee (FOMC) Seven members of Board of Governors plus presidents of FRB of New York and four other FRBs Federal Advisory Council Policy tools ? Twelve members (bankers), one from each district Reserve requirements open market operations discount rate Fed funds rate Federal reserve - responsible for oversight of some of the largest financial institutions in Manhattan and the surrounding area. New York ? ⁃ houses the open market desk (All of the Feds open market operations are directed through this trading desk) The New York Fed is the sole U.S. member of the Bank for International Settlements, facilitating direct ⁃ communication with foreign central bankers. chairman is the only permanent member of the FOMC ( vice-chairman of the committee.) ⁃ 12 Federal reserve banks? Boston, New York, Philadelphia , Richmond, cleavland, Atlanta , St Louis, Chicago, Minneapolis, Kansas City, Dallas, San Francisco 8 Functions: Clear checks Issue new currency and remove damaged currency Administer and make discount loans to banks in their districts Evaluate bank mergers and expansions Liaison between local community and the Federal Reserve System Perform bank examinations Collect and examine data on local business conditions Conduct research related to monetary policy FOMC? - FOMC meets 8 times yearly to decide on key agenda items. - They review reports on open market operations, economic forecasts, and monetary policy directives. - FOMC uses open market operations, reserve requirements, and the discount rate to control the money supply. - Chaired by the Chairman of the Board of Governors. - Directs actions to the New York Fed for securities buying and selling as required. Greenspan POV? Professional career running a consulting firm Disciple of Ayn Rand, believer in laissez-faire capitalism Not a theorist—believed more in what the data showed him Bernanke & Yellen POV'S ? Academics More theorists - involved in model design/analytics More "informal" and "clear" FOMC meetings compared to Greenspan Politic Indépendance ? - The Federal Reserve is politically independent in both goal and instrument decisions. - It sets monetary policy without direct interference from the President or Congress. - Board members serve non-renewable 14-year terms, reducing incentives for political catering. - Enables decisions in the public's best interest without short-term political influence. Economy inconsistance ? - The Fed's track record in managing the US economy has been inconsistent. - Mistakes were made during the Great Depression and periods of high inflation in the 1960s and 1970s. - Performance has been mixed, with challenges and errors across various economic periods. Transparency ? The Federal Reserve has increasingly moved towards greater transparency in its communications. - Changes include: - Revealing Federal Open Market Committee (FOMC) directives. - Announcing monetary policy biases. - Reporting roll call votes. - Releasing meeting minutes sooner. - These adjustments show a shift toward more open communication. Controverse ? - The independence of the Federal Reserve is seen as controversial due to concerns about its democratic legitimacy. - Critics argue it is controlled by an elite group with insufficient accountability. - Concerns also exist about potential political influence on the Fed’s decisions. - There are historical instances where the Fed is perceived to have made significant errors, such as during the Great Depression and periods of high inflation. Chair of the federal The current Chair of the Board of Governors of the Federal Reserve System is Jerome Powell. reserve bank European Central Bank (ECB): Canada England Japan Global Key Trends: All 7 members of the Board of Governors have an equal vote on monetary policy decisions: The Chair plays a leading role in guiding policy discussions and communications. The Chair presides over meetings of the key policymaking body (Federal Open Market Committee). However, the 12 regional Federal Reserve Bank presidents also participate and several rotate voting rights. Founded in 1999 by treaty between European countries Executive board has President, Vice President, 4 members (8-year terms) Policy group includes executive board + governors from 17 member countries Differs from Fed in budgetary control, operations at national level, no regulation role Decision making by consensus, not voting Considered the most independent central bank by treaty Bank of Canada founded in 1934 Directors appointed by government (for 3 years term), appoint Governor (for 7 years term) Government has ultimate authority but hasn't exercised it yet.. Bank of England founded in 1694 Court includes Governor, 2 Deputy Governors (5 years terms), 16 non-executive directors (3 years terms) Monetary Policy Committee sets interest rates Gained independence in 1997 after being least independent previously Bank of Japan founded in 1882 Policy Board with Governor, 2 Vice Governors, 6 outside members (7 years term) Gained independence in 1998 law But Finance Ministry can exert authority(Governor resigned recently over inflation target disagreement) Independence may be limited in practice Move towards greater central bank independence globally But governments can still exert influence, especially through appointments Varying structures, but typically policy boards/committees Transparency increasing with press conferences, communications