{"id":475,"date":"2014-03-11T08:00:31","date_gmt":"2014-03-11T08:00:31","guid":{"rendered":"http:\/\/blogs.pugetsound.edu\/econ\/?p=475"},"modified":"2014-03-09T04:59:28","modified_gmt":"2014-03-09T04:59:28","slug":"475","status":"publish","type":"post","link":"https:\/\/blogs.pugetsound.edu\/econ\/2014\/03\/11\/475\/","title":{"rendered":"A Glimpse into the Federal Reserve"},"content":{"rendered":"

The Federal Reserve recently released a\u00a0transcript<\/a>\u00a0of their Open Market Committee (FOMC) meeting in September 16, 2008. The FOMC oversees the Fed\u2019s \u201cOpen Market Operations,\u201d purchase and sale of bonds; the Fed controls our money supply through this mechanism. It makes sense for the operational arm of the Fed to convene bright and early\u20148:30am\u2014that day. This meeting took place in the thick of the financial crisis. Chairman Bernanke opened the session: \u201cGood morning, everybody. Sorry for the late beginning. The markets are continuing to experience very significant stresses this morning, and there are increasing concerns about the insurance company AIG.\u201d<\/p>\n

The committee went on to discuss the liquidity crises at Lehman and AIG, and then examines the reactions of other central banks. One of their first points of order was how to, in Bernanke\u2019s words, \u201coffer swaps to foreign central banks as needed to address liquidity pressures in those other jurisdictions.\u201d Essentially, how to make sure that foreign banks had enough dollars to run smoothly. The commentary of Mr. Dudley, Manager of the System Open Market Account, on the matter caught my eye:<\/div>\n

\u201cWould a big size that\u2019s fixed in quantity be most effective? Would an open limit be most effective? I think we have to have those discussions. I think the important thing here\u2014and what we\u2019re going for\u2014is credibility. In a crisis you need enough force\u2014more force than the market thinks is necessary to solve the problem\u2014and we\u2019re going to have to have discussions to determine how much is enough force.\u201d<\/p><\/blockquote>\n

In this statement, he acknowledges that technical actions to stabilize balance sheets are only half the Fed\u2019s battle. They also must exude enough confidence and power to convince the markets that they control the situation. Mr. Dudley\u2019s rationale illuminates part of the purpose of aggressive, unconventional US monetary policy over the last few years. In addition to directly shoring up bank reserves and expanding the money supply, it partly serves a PR campaign for economic confidence.<\/div>\n
 <\/div>\n

Later on, the committee formulates a statement on the situation. They debated the last sentence of their statement provoked a surprisingly long debate\u2014about five pages of transcript. Specifically, the committee considered using the word \u201cclosely\u201d versus the word \u201ccarefully\u201d in \u201cThe Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.\u201d At one point, the group digs down to roots of grammar, mentioning that \u201cclosely\u201d is an adverb as opposed to an adjective.<\/p>\n

Chairman Bernanke notes the ludicrousness of their discussion, but also its relevance. \u201cWe have seventeen people debating over this word, and it actually does matter.\u201d As Mr. Kronzner points out on page 81 of the transcript, the market hangs on their every word. He points out that traders have fixated on their use of the word \u201cyet.\u201d To the group\u2019s laughter, he points out that \u201cclosely” might garner as much, or even more attention, because it has two syllables.<\/div>\n
<\/div>\n

Despite their prolonged debate, the FOMC unanimously supported their final statement. They eventually settled on \u201ccarefully,\u201d which they believed showed genuine and active concern for the situation without implicitly promising a particular policy action on their part.<\/p>\n

These documents, if you\u2019re interested in tackling (or at least skimming through) a hundred pages, provide a glimpse behind the closed doors of monetary authority at a pivotal moment. They portray a remarkably focused, functional, and amicable team. Their quick actions reflect the general assumption that, at least in the United States, monetary policy provides the best opportunity for economic adjustments because moves much more nimbly than fiscal policy, which is run by Congress.<\/div>\n

 
\nCredit goes to\u00a0Marketplace<\/a>\u00a0for the original tip on this story.<\/p>\n","protected":false},"excerpt":{"rendered":"

The Federal Reserve recently released a\u00a0transcript\u00a0of their Open Market Committee (FOMC) meeting in September 16, 2008. The FOMC oversees the Fed\u2019s \u201cOpen Market Operations,\u201d purchase and sale of bonds; the Fed controls our money supply through this mechanism. It makes sense for the operational arm of the Fed to convene bright and early\u20148:30am\u2014that day. This meeting took place in the thick of the financial crisis. Chairman Bernanke opened the session: \u201cGood morning, everybody. Sorry for the late beginning. The markets are continuing to experience very significant stresses this morning, and there are increasing concerns about the insurance company AIG.\u201d The Continue reading A Glimpse into the Federal Reserve<\/span>→<\/span><\/a><\/p>\n","protected":false},"author":388,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6],"tags":[112,22,18,115,113,114],"class_list":["post-475","post","type-post","status-publish","format-standard","hentry","category-economics","tag-2008-financial-crisis","tag-ben-bernanke","tag-federal-reserve","tag-fomc","tag-monetary-policy","tag-open-market-committee"],"_links":{"self":[{"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/posts\/475","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/users\/388"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/comments?post=475"}],"version-history":[{"count":10,"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/posts\/475\/revisions"}],"predecessor-version":[{"id":477,"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/posts\/475\/revisions\/477"}],"wp:attachment":[{"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/media?parent=475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/categories?post=475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.pugetsound.edu\/econ\/wp-json\/wp\/v2\/tags?post=475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}