financial market & institutions spring 2014 chapter 4
DESCRIPTION
Financial Market & Institutions Spring 2014 Chapter 4. Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business”. 卜安吉. Money. The Fed. What are the three components of the Fed organization? The Governors The Federal Reserve Banks The Federal Open Market Committee. - PowerPoint PPT PresentationTRANSCRIPT
Financial Market & Financial Market & InstitutionsInstitutions
Spring 2014Spring 2014Chapter 4Chapter 4
Dr. Andrew L. H. ParkesDr. Andrew L. H. Parkes““A Macroeconomic Understanding for use in A Macroeconomic Understanding for use in
Business”Business”
卜安吉卜安吉
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 22
MoneyMoney
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 33
The FedThe Fed
What are the three components of the Fed What are the three components of the Fed organization?organization?
– The Governors The Governors – The Federal Reserve BanksThe Federal Reserve Banks– The Federal Open Market CommitteeThe Federal Open Market Committee
“The Fed” is the Central Bank (CB) of the U.S.A.
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 44
Three Tools of the Fed (CB)Three Tools of the Fed (CB)1. Open Market Operations
2. Discount Rate
3. Reserve Requirement
Yellen, ChairNone yet, Vice Chair
Stein
None
There are 7 Federal Reserve Board Governors:
Tarullo
http://www.federalreserve.gov/aboutthefed/default.htm
Bloom Raskin Powell
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 55
1. Open Market Operations1. Open Market Operations Federal Open Market Committee (FOMC)Federal Open Market Committee (FOMC)
– The 7 Board of Governors The 7 Board of Governors (usually)(usually)
– New York Fed Bank PresidentNew York Fed Bank President– 4 other Presidents of the 11 other Fed 4 other Presidents of the 11 other Fed
BanksBanks
Buy and Sell U.S. Treasury BillsBuy and Sell U.S. Treasury Bills (Notes and (Notes and
Bonds too but mostly Bills)Bonds too but mostly Bills) – Their actions decrease/increase the interest Their actions decrease/increase the interest
rate (respectively). – rate (respectively). – called open market called open market operationsoperations
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 66
2. Required Reserve Ratio2. Required Reserve Ratio
Set by the GovernorsSet by the Governors – – the Reserve Ratio is the percentage of the Reserve Ratio is the percentage of
checkable deposits that must be checkable deposits that must be kept at the Federal Reserve District kept at the Federal Reserve District Bank in their District as cash.Bank in their District as cash.
The effect is that the cash is not The effect is that the cash is not available for banks to loan out.available for banks to loan out.
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 77
3. Discount Window3. Discount Window
The Discount Window is not a The Discount Window is not a physical place but means that physical place but means that commercial banks may borrow commercial banks may borrow from the Fed at the Discount from the Fed at the Discount Rate.Rate.
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 88
3. Discount Window3. Discount Window
The “lender of last resort” function. The “lender of last resort” function. The legislation in 1913 created the The legislation in 1913 created the
Fed in 1914, not in the constitution. Fed in 1914, not in the constitution. Lending to banks was the central Lending to banks was the central
bank’s only role.bank’s only role.
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 99
The Federal Reserve The Federal Reserve SystemSystem The Board of GovernorsThe Board of Governors The Fed BanksThe Fed Banks The Federal Open The Federal Open
Market Committee Market Committee (FOMC)(FOMC)
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 1010
The FedThe Fed: The Board of : The Board of GovernorsGovernors
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 1111
The Fed:The Fed: The Fed Banks The Fed BanksThe Twelve Federal Reserve Districts – The Fed Banks
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 1212
The Fed:The Fed: The FOMC The FOMC The FOMC:
The Seven Governors, New York Fed President and 4 other Fed Presidents – 12 total members
Set Monetary Policy for the United States
In other words, the FOMC sets the “Federal Funds Rate” – The interest rate that banks borrow funds from each other
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.”
A decrease?
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 1313
The Fed:The Fed: The FOMC The FOMC 2014 Members of the FOMC2014 Members of the FOMC Members Members
– Janet L. Yellen, Board of Governors, Chair, Board of Governors, Chair– William C. Dudley, New York, Vice Chairman, New York, Vice Chairman– Richard W. Fisher, Dallas, Dallas– Narayana Kocherlakota, Minneapolis, Minneapolis– Sandra Pianalto, Cleveland, Cleveland– Charles I. Plosser, Philadelphia, Philadelphia– Jerome H. Powell, Board of Governors, Board of Governors– Sarah Bloom Raskin, Board of Governors, Board of Governors– Jeremy C. Stein, Board of Governors, Board of Governors– Daniel K. Tarullo, Board of Governors , Board of Governors
Alternate Members Alternate Members – Charles L. Evans, Chicago, Chicago– Jeffrey M. Lacker, RichmondJeffrey M. Lacker, Richmond– Dennis P. Lockhart, AtlantaDennis P. Lockhart, Atlanta– John C. Williams, San FranciscoJohn C. Williams, San Francisco
–Christine M. Cumming, First Vice President, New YorkChristine M. Cumming, First Vice President, New York
Meeting: March 18-19, still 0 - 0.25% ff rate?
http://www.federalreserve.gov/monetarypolicy/fomc.htm
http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 1414
The Fed:The Fed: The Past Chairman The Past Chairman
Ben Bernanke
Where is it today?
April 3, 2014April 3, 2014Financial Markets & Institutions, Financial Markets & Institutions,
FedFed 1515
Fed Funds Rate HistoricallyFed Funds Rate Historically