The Federal Reserve #primers

The Federal Reserve is the central bank of the United States, and the single most important participant in global finance.

The Fed has a duel mandate: full employment and stable prices. In practice, the Fed doesn’t know what unemployment rate corresponds to full employment and it hasn’t been able to sustainably reach its 2% inflation target for over a decade.

The Fed’s experience with inflation is not unlike the experience of other major central banks such as the Bank of Japan (BOJ) and the European Central Bank (ECB), who have experimented boldly over the past decade but consistently failed to reach their inflation targets.

The Fed’s efforts to achieve its duel mandate has also led it to gradually expand its policy tool kit and engage in unconventional monetary policy, including large-scale money printing (reserve creation).

The Fed thinks of the economy through the lens of interest rates, which is the primary tool through which the Fed achieves its mandate.

The Fed recognizes a value called r* (“r star”), which is the neutral rate of interest at which the economy is neither expanding nor contracting. When interest rates are below r*, then the economy is expanding, inflation is rising, and unemployment is ticking lower. When interest rates are above r*, then the economy is slowing, inflation is declining, and unemployment is ticking higher.

In this video, we detail the Fed, its mandate, and its tools:

1) Goals of the Fed
> Full Employment
> Natural Rate of Unemployment
> Price Stability
> Inflation Expectations
> The Trade Off
> The Lender of Last Resort
2) Tools of the Fed
> Neutral rate of interest (r*)
> Fed Funds Rate (FFR)
> QE
3) Channeling Policy into the Real Economy
4) Case Studies:
> Higher for Longer
> Reverse Wealth Effect
> Taper Tantrum
> Corporate Credit Facility

For those who prefer text, here is the slideshow PDF. In addition, all of this is available as text in Central Banking 101

#primers

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