a term at the fed; an insider''s view (2004)

[...]... that allows an administration to get some quick feedback about possible reactions to a nomination the speculation was that I was chosen to fulfill the same task that Rohatyn would have cheerfully taken up, to challenge Alan Greenspan and move policy in a more accommodative and growth-oriented direction That speculation made me nervous I didn’t agree with Rohatyn at all on this issue I believed that the. .. to rise at a 40% annual rate, topping out at 100% for the year ending in March 2000 The New Economy, in fact, kept the U.S economy a oat through A TERM AT T H E 7 FED some very stormy weather In the second year of my term, the Asian markets began to wobble and fall First it was Thailand, then came Malaysia, Indonesia, the Philippines, and Hong Kong At the Fed, we kept monitoring the overseas turmoil... on what we should do in terms of monetary policy, but on what damage had been sustained by the financial infrastructure Were the financial markets sound? What was the degree of threat to the functioning of the payments system? How extensive was the damage to 4 L A U R E N C E H M E Y E R the banks—and to the communications systems that helped the banking system clear payments? At the Fed, what was our... that, in the long run, the rate of inflation will mirror the rate of growth in the money supply.3 But the FOMC (and other central banks around the world) have historically set monetary policy in terms of a target for some short -term interest rate (the federal funds rate, in the case of the Fed), rather than in terms of a target for money growth.4 Once a central bank sets a target for a certain short -term. .. the staff, your peers, and the Chairman—that influence your effectiveness as a governor That’s why this book is as much about relationships as it is about economics A third lesson was that what the Fed says is often equally important to what it does, and often more so The FOMC moves markets That’s why FOMC members have to be so careful about what they say (and why the Chairman would prefer they say as... have terms that span administrations Therefore, it is not unreasonable that somewhat greater scrutiny should be given to appointments to such independent agencies In any case, Rohatyn was considered simply too political (or at least too philosophically objectionable) for the Republicans to stomach, and they made it clear that he could not be confirmed So the administration was in search of an alternative... that span the entire nation).2 The structure also gives a special weight to the Board, whose members constitute a majority of the voting members The FOMC steers the economy by setting the federal funds rate The federal funds rate is the rate on loans from one bank to another It eventually determines the interest rates charged to businesses and households and, hence, affects a broad range of financial... we saw no signs of increasing inflation and later because we feared the Asian crisis might slow the U.S economy (it ultimately didn’t) Still later, we eased rates in response to the escalation in global financial turbulence that followed the Russian default and devaluation and the implosion of LTCM As I entered the second to last year of my term, it seemed that we had steered Fed policy pretty well The. .. of the Fed (and specifically of its Chairman, Alan Greenspan) with inflation was resulting in a tighter monetary policy than was appropriate and slower growth than would otherwise have been possible In order to make monetary policy more accommodative and growth oriented, Clinton wanted to appoint governors to the Board who shared his convictions and would challenge the Chairman Clinton had found the man... times the words money supply were uttered at FOMC meetings.5 The discussion about the ranges was generally mechanical and disinterested, with the main xi P R E FA C E objective being to avoid making any changes to them that would suggest that the Committee was paying more attention to the monetary aggregates than they had recently Toward the end of my term, the Committee asked that it be released from the . re- sponsibilities. I am also grateful to all the staff I worked with at the Board, my colleagues on the Board and the FOMC, and especially Alan Green- span for making my term at the Fed such an enjoyable,. My assistant at the Center for Strategic and International Stud- ies, Adam Bowman, provided excellent research assistance and took charge of the fact checking for the book with a passion that. things about horse racing before you go to the track. One is the NAIRU. This is a concept that I’m attached to and that has attached itself to me. NAIRU stands for Non-Accelerating Inflation Rate