Stay up to date with analysis on the latest Fed speeches and the developing views of the members on the committee
Structure of the Fed
The Fed is composed of 12 Federal Reserve Banks across the Country and the committee that makes the decisions on the Fed day is called the FOMC (Federal Open Market Committee) which is composed of the members of the Board of Governors and the Banks. To learn more about the detailed structure read the following page which is explained by the Fed themselves.
Policy Objectives of the Fed
The Fed has a dual mandate which is to ensure that inflation remain at a target (2%) while also ensuring unemployment remains as low as possible. As per many economic theories, due the result of the boom and bust economic cycle many times these objectives end up being at odds with each other thereby requiring the Fed to thread the needle with these.
There is a third objective but not mentioned as often which is to do with the stability of the Financial system. The Fed ensures there is ample liquidity in the system to ensure smooth functioning of the banking sector and the larger transactions with the financial system. This is done to ensure the citizen of the US and investors worldwide have confidence in the US financial system. It would be fair to argue that whenever a risk to the financial system emerges this becomes a top priority for the Fed. After the collapse of SVB in March 2023 when amidst hiking in the backdrop of high inflation the Fed introduced the Bank Term Funding Program to make liquidity easily and cheaply accessible for many regional banks for whom there was a major risk at the time.
Chairman of the Federal Reserve – Jerome Powell
- Current Appointment: Nominated by President Trump and confirmed by large majorities by both the Senate and the Senate Banking committee. Assumed the office of Chairman on 5th February 2018. He was reappointed as Fed Chair by President Joe Biden in 2022.
- Prior Position in the Fed: Appointed to the Federal Reserve Board of Governors by President Barack Obama in 2012, where he served until he became Chairman of the Federal Reserve.
- Political Leanings Prior to Fed appointment: Republican, served in the Treasury Department under Republican President George HW Bush from 1990 to 1993.
- Experience outside Government: Lawyer by education, he has extensive experience in the Private Equity sector (particularly the Industrial Sector) when he was a partner at The Carlyle Group. Prior to this, his experience in the private sector included working as a lawyer and an investment banker.
- Major Crisis: Powell has faced 2 major crisis as Fed Chair with the biggest one being Covid-19 in 2020 where he brought rates to the zero bound and dramatically opened up the gates fro increasing liquidity in the system. The second biggest crisis was one of high inflation, and many commentators blame the lack of urgent action as the cause for its rise, in fact June 2022 saw a YoY rate of 9.1% which was the highest since the last 40+ years. Powell and his Fed responded by hiking rates to a high of 5.5% and kept them high until inflation dropped below 2.5%.
- Minor Crisis: The liquidity crunch of 2019 and the SVB and regional banking debacle of 2023.
- Policy Leanings Summary: As Chairman, Powell has had an open mind with a lot of stress on looking at incoming data to gauge the economy. He is part of the reason why the Fed has stressed a data dependent approach. But given the fact that he has now been at the forefront of two hiking cycles, despite flak from President Trump the first time and from progressive Senators the second time might indicate that he tilts more hawkish than dovish. Based on my knowledge on policy and his actions amidst the economic backdrop and crisis, his overall tenure will probably garner a hawk-dove score of 60/100 (where 100 is the most Hawkish and 0 is the most Dovish). Overall, Powell leans a bit more hawkish than dovish but the defining trait is his risk averse style of policy that includes a wait and watch approach. He considers data paramount and does not veer off to theoretical models as some economists or policymakers may. His policy stance moves in a particular direction until the task is complete or a set point of risk has been crossed at which point he will try and find either an alternate fix to that new risk or change course.
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