Estimates of the economy's performance in the 2nd quarter of this year have been revised downward and the Federal Reserve is considering whether and how to respond. Given past activities, their tool box is running low.
2302 students should read up on the Federal Reserve -- our central bank, sort of -- which is part of the bureaucratic component of the federal executive branch. It was created in the early years of the 1900s -- interestingly -- due to a financial crisis, and is in charge of the country's monetary policy. One of their functions is to pump money into the economy during recessions and pull it out when inflation threatens. The trick is figuring out when and how to do this. That is part of the debate going on within the fed at the moment.
2301 students might want to consider disputes concerning the propriety of the very existence of the Fed, as well as the institution's insulation from the general population. As we will see, the founders differed on the strength of the attachment that ought to exist between the workings of governing institutions and the immediate preferences of the public. The Fed is very insulated. We should discuss in class whether this is a good idea.
Some links:
- The Fed is currently meeting Jackson Hole, Wyoming (sweet) at a conference organized by the Kansas City Branch.
- Fed Chair Bernacke weighs possible options, most probably purchasing securities, which is an effective way to pump money into the economy.
- Bernacke's best tool may be persuasion.
- Federal Reserve tags from the Washington Post.
- Wikipedia: Federal Reserve System.
- Times Topics: Federal Reserve System.
