introduction to the federal open market committee (fomc ... · overview • goals of monetary...
TRANSCRIPT
June 6, 2013Rexburg, ID
Gary C. Zimmerman, Senior EconomistYelena Takhtamanova, Economist
Federal Reserve Bank of San Francisco
Introduction to the Federal Open Market Committee (FOMC)
and Monetary Policy
Handouts as of 6-3-2013.
Federal Reserve Board Washington, D.C.
Overview
• Goals of monetary policy• Introduction to the FOMC• Behind the scenes at an FOMC meeting• Tools of U.S. monetary policy• The importance of transparency• The role of economists at the Fed
These remarks represent our views and not necessarily those of our colleagues in the Federal Reserve System and the Federal Reserve Bank of San Francisco.
No audio recording, video recording, or photography is permitted without the permission of the presenters. This presentation may not be reproduced in any
form without the express, written permission of the presenters.
Congress has set these two monetary policy goals for the Federal Reserve:
1) Promote maximum sustainable output and employment
2) Promote stable pricesStatement of FOMC’s longer-run goals and policy strategy (1/25/12)• Inflation target of 2 percent• Estimates of the longer-run normal rate of unemployment with a
central tendency of 5.2 to 6 percent
http://www.federalreserve.gov/newsevents/press/monetary/20120125c.htm
U.S. Monetary Policy Goals
INTRODUCTION TO THE FOMC
Our National Monetary Policymakers
FOMC Meeting Participants
1) Seven Federal Reserve Board GovernorsAll are always voting members
2) Twelve Federal Reserve Bank PresidentsFRBNY president always votesFour other presidents vote on an annual rotating basis
All FOMC members participate in discussions
2013 FOMC Members: Posted on the Federal Reserve Board of Governors Website
Members Alternate Members
Richard W. Fisher, Dallas Narayana Kocherlakota, Minneapolis Sandra Pianalto, Cleveland Charles I. Plosser, Philadelphia Christine M. Cumming, First Vice President, New York
http://www.federalreserve.gov/monetarypolicy/fomc.htm
Ben S. Bernanke, Board of Governors, ChairmanWilliam C. Dudley, New York, Vice ChairmanJames Bullard, St. LouisElizabeth A. Duke, Board of GovernorsCharles L. Evans, ChicagoEsther L. George, Kansas CityJerome H. Powell, Board of GovernorsSarah Bloom Raskin, Board of GovernorsJeremy C. Stein, Board of GovernorsEric S. Rosengren, BostonDaniel K. Tarullo, Board of GovernorsJanet L. Yellen, Board of Governors
Around the Table!
FOMC members’ backgrounds differ: Many economists, Fed officialsMany with academic experienceSenior government officials, bankers, regulators
Extensive preparation process for each FOMC meeting:
Federal Reserve Board provides briefing materials to all FOMC participants
Each Reserve Bank prepares a briefing for its President prior to an FOMC meeting
Views may differ (a strength of the process)
Experts with Diverse Backgrounds
The Board of Governors
Governors are appointed by the president and confirmed by the U.S. Senate.
Ben S. BernankeChairman
Daniel K. Tarullo
Elizabeth A. DukeJanet L. YellenVice Chair
Sarah Bloom Raskin Jerome H. PowellJeremy C. Stein
BEHIND THE SCENES AT AN FOMC MEETING
• Chairman sets the agenda• Progression of the meeting:
1) Staff reportsOpen market operationsThe economy Policy alternatives
2) 1st go-around: the economy3) 2nd go-around: monetary policy4) The FOMC discusses policy options
and wording of the statement5) 12 “voting” members take a vote6) Statement released at 2:15 pm eastern time
Meeting Agenda
Monetary Policy Decisions
• FOMC members’ focus: – National policy decision– Recent data and developments– Forward looking– Dynamic environment
• Balancing goals:– Single vs. multiple goals– Short term vs. long term
TOOLS OF U.S. MONETARY POLICY
Tools for Achieving Intermediate Policy Objectives
TOOLSInterest Rate Policies:– Open market operations (conv.)
used in conjunction with paying interest on reserves
– Large-scale asset purchases (unconv.) – LSAPs or QEs
– Communications Transparency Forward guidance
Providing Liquidity:– Discount window (conv.)
– New credit facilities (unconv.)
OBJECTIVES
– Target federal funds rate
– Affect long-term rates more directly
– Affect short-term and long-term rates
– Provide liquidity to depository institutions
– Provide liquidity to the financial system
Conventional Tools of Monetary Policy: Target Federal Funds Rate (Feeds Through to Longer-Term Rates)
Unconventional Monetary Policy Actions Increased the Size and Changed the Composition of the Federal Reserve Balance Sheet
THE IMPORTANT ROLE OF TRANSPARENCY
• Transparency helps the public understand the Fed– Its objectives and strategies – Its assessments of the economic outlook
• Forward guidance provides information on the Fed’s expected policy actions
• Benefits of increased transparency and forward guidance– Reduce economic and financial uncertainty – Increase effectiveness of monetary policy– Enhance Fed accountability and legitimacy
Transparency and Forward Guidance: Goals and Benefits
Movements Toward Transparency: Brief History
• 1978: Testimony to Congress• 1994: Announcement of fed funds target, descriptions of the state of the
economy and the rationale for the policy action• 2000: Added “balance of risks” to the outlook• 2002: Released votes of individual members• 2003: Added forward-looking guidance on policy• 2005: Expedited release of FOMC minutes• Nov. 2007: Added numerical forecasts to the FOMC minutes four times
per year, with a 3-year time horizon• Feb. 25, 2009: New website launched by the Board of Governors to
provide information on the Fed's policy actions during the financial crisis • April 27, 2011: Chairman’s press conference added
http://www.federalreserve.gov/monetarypolicy/bst.htm
Movement Toward Transparency:Recent Initiatives
• Statement of FOMC’s longer-run goals and policy strategy (1/25/12)
• Introduction of inflation target• Estimate of longer-run natural rate of unemployment
• Qualitative guidance regarding QE3:• Labor market conditions• Cost/benefit analysis
• Quantitative guidance regarding FOMC expectations for the federal funds rate:• Calendar Date• Numerical Thresholds
Movement Toward Transparency:Recent Initiatives
• Statement of FOMC’s longer-run goals and policy strategy (1/25/12)
• Introduction of inflation target• Estimate of longer-run natural rate of unemployment
• Qualitative guidance regarding QE3:• Labor market conditions• Cost/benefit analysis
• Quantitative guidance regarding FOMC expectations for the federal funds rate:• Calendar Date• Numerical Thresholds
• 08/11: “mid-2013”• 01/12: “late 2014”• 09/12: “mid-2015”• 12/12: calendar date-based guidance
replaced with numerical thresholds
Forward Guidance for the Federal Funds Rate: Information About Expected “Liftoff date”
Exceptionally low range for the federal funds rate will be appropriate for at least as long as:
1. The unemployment rate remains above 6-1/2 percent2. Inflation between one and two years ahead is projected
to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and
3. Longer-term inflation expectations continue to be well anchored
Forward Guidance: Introduction of Numerical Thresholds (“6-1/2 2-1/2 Policy”) on 12/12/12
Quantitative Guidance Regarding FOMC Expectations for Future Monetary Policy
YEAR: 2013 2014 2015 2016
13
12
11
10
9
8
7
6
5
4
3
2
1
23
13
1
March 2013 Meeting Number of Participants
Appropriate timing of policy firming
March 20, 2013 Projections. Next Projections: June 19, 2013.
THE ROLE OF ECONOMISTS AT THE FED
Who The Fed Economists Are
Fed is one of the largest U.S. employers of economists
• Board has over 200 economists• 12 Reserve Banks have about 275 economists• B.A./M.A. level Research Associates/Analysts
Economists have diverse areas of focus:• Macroeconomics (produce forecasts)• Banking/Financial• International• Applied Micro/Regional (produce the Beige Book)
• Conduct and publish economic researchExample: http://www.frbsf.org/economics/
• Produce economic briefings for FOMC members and senior management
– Intense briefing process– Independent– Economists may not always agree – a strength of
the process
• Check out FOMC minutes to see discussions of macro, financial, international, and regional conditions http://www.federalreserve.gov/newsevents/press/monetary/20120403a.htm
What The Fed Economists Do
Much of The FOMC Analysis Is Published!
Contributions of economic research to the President often become:
• Publications and web products– FedViews Forecast– Economic Letters– Working Papers– Beige Book Summary– 12L Economic Trends
• Academic journal articles
Thank You!
Gary C. Zimmerman, Senior EconomistYelena Takhtamanova, Economist
Questions?
FRBSF Resources
www.frbsf.org/economics/
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