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What is the fed doing in the education business?

  • Economics
  • Education


Statements and Speeches 1 What Is the Fed Doing in the Education Business? Academy of Economics and Finance Excelsior Hotel Little Rock, Arkansas February 12, 1999 your questions, whether they’re about economic education, the economy or the Fed. Before I get further along, let me emphasize that the views I express here are my own. Within the Federal Reserve System, there are nuances of view on almost every subject. Thus, my remarks do not necessarily reflect official views of the Federal Reserve System. WHY IS THE FED INVOLVED? Let me introduce my topic this way: At each meeting of the Federal Open Market Committee (FOMC), which sets national monetary policy, the end result is a decision on the intended or target federal funds rate. This interest rate, as most of you know, is of little direct importance. The rate is for a one-day loan—an “overnight” loan in market jargon—between two banks. It is a matter of minor concern what rate one bank charges another. But changes in the fed funds rate can and do affect the 30-year mortgage rate, Treasury bond rates, the stock market and a host of other things we care a lot about, such as the rate of infla- tion of the general price level and the unemploy- ment rate. How can an overnight interest rate have such effects? If you don’t know—and a lot of people don’t—and you’re curious, you are a can- didate for the Fed’s econ ed efforts. Let’s dig a bit further into this line of argument by considering this proposition: If the FOMC’s decision on the fed funds rate can affect the mar- kets today, then an FOMC decision six months from now to change the rate will affect the markets at that time. And we know that expectations about market prices in the future will affect people’s Y ou may be wondering about my title,for you probably think of the Fed asbeing in the monetary policy businessand not the economic education busi- ness. I want to convince you that to do a good job in the monetary policy business, we have to also do a good job in the

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