Tag: Federal Reserve

After a whirlwind week in New York, we headed south to Washington, D.C. to immerse ourselves in the workings of government and financial regulation with Olin’s Brookings Executive Education (BEE) team as our guide. The day started with welcoming remarks and introductions from Ian Dubin, Associate Director, and Chris Mancini, Program Coordinator. They explained the general agenda for the week, and the long and special history between the Brookings Institution and Washington University in St. Louis.

After the brief introduction, Mr. Dubin gave us an overview about the basic structures of U.S. government and legislative processes to set the stage for the week. He explained the unique roles of the Executive Branch, Senate and House of Representatives, and the complexity of the legislative process.

We also learned about the Brookings think tank and how it contributes to making public policy. The Brookings Institution is one of the most important and influential public policy research think tanks in the world.

The rest of the day was spent learning more about the various key financial sector regulators as well as learning directly from current and former regulators from both the Department of the Treasury and the Federal Reserve.

First, we learned from David Wessel, who is the Director of the Hutchins Center on Fiscal and Monetary Policy. He briefly explained the function of the United States Financial Stability Oversight Council (FSOC), and also introduced 10 micro-prudential regulators in the system, such as the Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), and The Federal Reserve, to name a few. Although the FSOC provided the chairperson of each of the 10 agencies with the opportunity to communicate with each other, he stated that those 10 chairs have different missions and have issued regulations on financial institutions (banks) that are conflicting. This resulted in banks having a hard time fulfilling the requirements outlined by different regulators. He also touched upon the importance of Macro-Prudential Regulation (FSOC role), and highlighted the differences between finance and other industries, especially in terms of contagion risk. Last but not the least, he compared the FSOC structure with that of the Bank of England.

Winthrop Hambley speaks to Olin students during their visit with Brookings Executive Education.

Our last speaker of the day was Winthrop Hambley, former Senior Advisor, Board of Governors, The Federal Reserve. He first introduced the structure of the Federal Reserve and its key monetary policy-making body, the Federal Open Market Committee (FOMC).

He then proceeded to explain to us both traditional monetary policies as well as non-traditional monetary policies, which were introduced after the financial crisis–namely, large scale asset purchases, forward guidance, and maturity extension.

Last but not least, to address the popular topic of the Fed rate hike expectation, he spent some time explaining to us the rate normalization process and considerations during Q&A.

This is part of a series of blogs chronicling the experiences of 41 Global Master of Finance (GMF) dual degree students during their two week long immersion course in New York and Washington, DC. Each blog will be written by a small subset of students during their experience.

Federal Reserve Bank watchers are still waiting for a sign, a word, a signal on when – or if – interest rates will rise. David Nicklaus writes in his St. Louis Post-Dispatch column that the Fed’s credibility is at stake in the interest rate decision. He interviewed Olin’s Jennifer Dlugosz, assistant professor of finance.

“This is a dance that’s continually going on,” says Jennifer Dlugosz, assistant professor of finance at Washington University’s Olin Business School. “Markets are trying to figure out what the Fed is going to do, and the Fed is always subject to ongoing data.” While repeated delays might hurt the Fed’s credibility, Dlugosz points out that a premature move would be even worse. If the Fed raised rates and then had to cut them a few months later in the face of a deteriorating economy, markets might really come unglued.  Link to article

Professor Dlugosz was an economist at the Board of Governors of the Federal Reserve System in Washington, DC. She holds a Ph.D. in Business Economics from Harvard University and dual bachelors’ degrees in Finance and Systems Engineering from the Wharton School and the School of Engineering and Applied Sciences of the University of Pennsylvania.

It was the financial move the entire world was waiting for: Today, Sept. 17, the Federal Reserve opted to hold short-term interest rates steady near zero, continuing a seven-year status quo.

The federal funds rate — the rate at which banks charge one another for overnight loans — began its decline in September 2007 and bottomed out at zero during the financial crisis in 2008.

While the economy has rebounded, the recent market upheaval in China, and the resulting ripple effects felt globally, raised concerns. The Fed’s decision to hold rates steady buys more time to gauge global markets’ strength, and possible volatility, should a rate hike be put into place in the near future.

“While the economy is running at ‘full employment’ now, some of the recent economic data has been a bit weaker than expected,” said Jennifer Dlugosz, PhD, assistant professor of finance at Olin Business School at Washington University in St. Louis.

“The uptick in financial market volatility and concerns about global growth probably didn’t help either,” she said. “This gives policymakers a chance to try to get a better read on which direction we’re headed in before next month’s meeting.”

Prof. Dlugosz previously served as an economist at the Board of Governors of the Federal Reserve System in Washington, D.C.

Guest blogger: Erika Ebsworth-Goold, WUSTL Newsroom

Jennifer Dulugosz, assistant professor of finance, tells St. Louis Public Radio that protests at Federal Reserve banks across the country this week were misguided if correcting unemployment disparity was the goal. “We know from macroeconomics that if the Fed tries to push the rate of unemployment below the natural rate, which people think is 5.5 percent, that it wouldn’t work and that it would just accelerate inflation,” she said.

Read Maria Altman’s report here.

Image: by Maria Altman. Derek Laney, Michael McPhearson, and Jeff Ordower (from left to right) were among protesters outside the Federal Reserve Bank of St. Louis on Thursday.

Bankrate, June 30, 2014: “Study: Fed actions worked during meltdown.” Prof. Jennifer Dlugosz’s research on the role of the Federal Reserve in the aftermath of the 2008 financial crisis is covered in a Q&A with Prof. Dlugosz.

Jennifer Dlugosz, assistant professor of finance at Olin Business School

Image: Kevin Dooley: Newswave (news banner lights, time-lapse in Times Square, New York City), Flickr Creative Commons