DOCSLIB.ORG

What to Expect from Fed Chair Yellen

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
What to Expect from Fed Chair Yellen Investment Insight November 2013 Authors WHAT TO EXPECT FROM FED CHAIR YELLEN IN BRIEF • The US Federal Reserve’s monetary policy under Janet Yellen will be broadly similar to monetary policy under Ben Bernanke, but we expect some important differences. Erik S. Weisman, Ph.D. Fixed Income Portfolio • Yellen is likely to emphasize consensus less and her own views more, resulting in greater Manager transparency along with clearer and more forceful forward guidance. • Unlike her predecessor, Yellen is a strong advocate of including rules-based approaches to determining monetary accommodation. • She will look for a broad-based improvement in labor market indicators before recommending that quantitative easing should be tapered. • Her academic research supports her belief that the high unemployment since the ! nancial Robert Spector, CFA crisis has been largely cyclical rather than structural. Institutional Portfolio Manager • The implication is that Yellen may place a heavier weight on one part of the Fed’s dual mandate (employment) than on the other (price stability). President Obama has nominated Janet Yellen, the current vice chair of the US Federal Reserve, to replace current chair Ben Bernanke, whose term expires in January. This is a relatively rare changing of the guard: Over the 100 years since the Fed was created, only 14 men have served in this role, and there have been times when the Fed chair has arguably been the most in" uential person in the world. Indeed, the names Bernanke, Greenspan, Volcker and Burns all conjure up powerful impressions, replete with monetary policy successes and failures. Yellen comes to the job with strong academic and policymaking credentials, having earned a Ph.D. in economics from Yale and faculty appointments at Harvard and the London School of Economics. She also chaired President Clinton’s Council of Economic Advisors and the Economic Policy Committee of the Organization for Economic Cooperation and Development from 1997 to 1999. She has more Fed experience than Bernanke had when he became chair, having served on the staff of the Federal Reserve Board of Governors in the late 1970s and again as a member of the Federal Open Market Committee under Chairman Alan Greenspan in the mid-1990s before becoming president of the BUILDING Federal Reserve Bank of San Francisco in 2004 and vice chair of the Federal Reserve Board in 2010. BETTER Comparison with previous Fed chairs ® While Yellen’s nomination has generally been seen as a signal of policy continuity, she will be different INSIGHTS from her two immediate predecessors. Many believe that she will be less dictatorial than Greenspan, who dominated FOMC meetings by speaking ! rst, but less deferential than Bernanke, who typically speaks last during policy meetings in an effort to reach a broad consensus. Like Greenspan, Yellen will be inclined to state her own view with her own voice, yet she is unlikely to run the Fed in such a page 1 of 4 Investment Insight / November 2013 centralized fashion. Like Bernanke, she will strive to maintain a Quantitative easing collegial atmosphere in which other FOMC members are permitted Of the other tools at her disposal, Yellen has expressed her to express their opinions. But rather than seeking consensus at con! dence in the ef! cacy of the third round of quantitative the expense of policy design or transparency, she will probably easing — the Fed’s monthly $85 billion purchases of longer-term tolerate more dissent if that can lead to a better outcome. As a Treasuries and mortgage-backed securities — and her belief that result, Yellen’s Fed may lie somewhere between Greenspan’s and the bene! ts of QE have so far outweighed the potential costs. Last Bernanke’s in terms of the policymaking process. spring she found no pervasive evidence of any ! nancial imbalances Setting the federal funds rate is typically considered the primary job or negative market impacts, although since then, MBS market of the chief US central banker. But with the rate targeted near zero functioning has been somewhat impaired as the Fed’s MBS buying and likely to stay there as long as labor markets and in" ationary has arti! cially pushed down yields, which ultimately pass through expectations remain so subdued, the job for Yellen may be more to markedly lower mortgage rates. While she does recognize that about using the other monetary policy tools at her disposal, QE could threaten ! nancial stability by promoting excessive risk- namely quantitative easing and forward guidance. taking, in her view that might not be so problematic in the current environment of extreme risk aversion. Optimal control By contrast, several FOMC members have expressed concern In recent speeches, Yellen has discussed rules-based approaches about the size of the Fed’s balance sheet. According to the minutes to determining appropriate monetary policy. Over the past two of the September meeting, most participants would have been decades, Fed watchers have looked to the Taylor rule for a gauge comfortable reducing the pace of asset purchases starting this of how the central bank should adjust short-term interest rates year and ending in mid-2014, and a number of policymakers were to guide in" ation and unemployment toward the Fed’s targeted disappointed by the decision not to begin tapering in September rates.1 Rather than focus on the typical Taylor rule, under which and by the lack of transparency about that decision. the deviation of in" ation and unemployment from Fed targets It seems likely that a Yellen Fed may start to taper asset purchases are given equal weight, Yellen refers to a version she calls the later and at a slower pace. As for the actual timing, she has “balanced approach” rule, which doubles the weight on the offered ! ve speci! c measures to guide her overall view about unemployment gap compared to the in" ation gap — a sign improvement in the labor market outlook: the unemployment rate, that she may place a higher weight on one side of the Fed’s dual payroll job growth, the hiring rate, the quit rate and the economic mandate than on the other. She also introduces “optimal control” growth rate. Several of these measures have improved under QE, techniques to derive a prescribed path for the policy rate based on but not by enough. She has not indicated whether she believes a forecast of economic conditions.2 Thus, she is focused on several MBS or Treasury purchases are more effective in stimulating the rules-based approaches. economy or which she would taper ! rst. Yellen has stated that in a Yellen advocates considering these approaches simultaneously, crisis, all available tools should be employed to help bolster private since simple rules such as the balanced approach perform well credit markets, but once the economy is back to normal, the Fed under ordinary circumstances but may be challenged in times like should eventually return to a Treasury-only balance sheet. these, when persistently strong headwinds continue to restrain the economic recovery, even with the federal funds rate held Forward guidance near zero. And she has noted that optimal control simulations to Another increasingly important tool for the Fed is forward minimize the deviation from the Fed’s objectives are sensitive to guidance, the ability to set expectations by clearly signaling model speci! cations and to potentially unrealistic assumptions. its future intentions. A big proponent of transparency, Yellen Nevertheless, Yellen believes that over the next several years, the has presided over major policy changes as head of the FOMC Fed’s dual mandate of maximum employment and stable prices subcommittee on communications, including persuading her may be better met under optimal control, even though the policy colleagues of the need for the chair’s quarterly post-meeting commitment may appear suboptimal along the way. Speci! cally, press conference. Fed messaging should be more straightforward in" ation would be allowed to persistently overshoot the 2% target with Yellen as chair, with less scope for the kind of confusion that as long as that would help bring unemployment down to 6.5% surrounded the decision not to taper in September. more quickly. Yellen believes that the Fed should give explicit forward guidance Yellen also believes the real neutral federal funds rate may be about holding rates “lower for longer.” She has strongly endorsed substantially below its historical average, which suggests a more outcome-based guidance predicated on thresholds for speci! c accommodative policy path than current consensus expectations.3 macroeconomic variables as a major improvement over calendar- More precisely, she argues that when the Fed actually hikes the based guidance that is date speci! c. In keeping with this emphasis, policy rate, the terminal rate may be quite a bit lower than the 5% the Fed has adopted a clear 6.5% threshold on the unemployment to 6.5% range reached in the late 1990s or mid-2000s. rate, with the provision that projected in" ation should stay within page 2 of 4 Investment Insight / November 2013 one-half percentage point of its 2% target before the Policy implications Fed would consider raising rates. However, both Bernanke The nomination of Yellen as Fed chair resolves the uncertainty and Yellen have suggested that there could be some latitude about Bernanke’s successor that was evident in confusing forward around these objectives. guidance and bond yield volatility earlier this year, and should pave Her ! rst task as Fed chair may be strengthening the guidance the way for a smooth transition in the conduct of monetary policy around QE tapering — in particular, leading the market away from if she is con! rmed without delay. She has strong quali! cations in expecting asset sales to be a meaningful part of the exit strategy.
Load more

Recommended publications
  • Janet Yellen's Legacy at the Federal Reserve
    Journal of Finance and Bank Management December 2019, Vol. 7, No. 2, pp. 82-87 ISSN: 2333-6064 (Print), 2333-6072 (Online) Copyright © The Author(s). All Rights Reserved. Published by American Research Institute for Policy Development DOI: 10.15640/jfbm.v7n2a6 URL: https://doi.org/10.15640/jfbm.v7n2a6 Janet Yellen’s Legacy at the Federal Reserve Alexander G. Kondeas1 Abstract This paper examines the empirical results of the monetary policies followed by the Federal Reserve during the period of 2010-2018, when Janet Yellen served first as vice chair (2010-2014) and subsequently as chair (2014-2018) of the Federal Reserve Board of Governors. As the Central Bank of the United States, the Federal Reserve System (FED) is entrusted with conducting the monetary policy in a way that fulfills the Congressional dual mandate of price stability and full employment. Janet Yellen generally adhered to a dovish view of monetary policy, one that favors looser monetary control and lower interest rates in order to stimulate economic growth. At first glance, the dual mandate was satisfied during her eight years of progressively higher leadership roles at the FED. The economic recovery from the Great Recession (2007- 2008) continued, inflation remained tamed, and the rate of unemployment fell to its lowest level since 1970. Yet a closer look at consumer spending and private fixed investment indicate a sharp decline in the years following the Great Recession and until the end of Yellen’s term at the FED. It is difficult therefore, to argue that the loose monetary policies of her years in office had much of a stimulating effect on the household sector or the business sector.
    [Show full text]
  • Reforming the International Financial Architecture, 2011 Edition1
    Reforming the International Financial Architecture, 2011 Edition1 Barry Eichengreen May 2011 If U.S. President Clinton’s treasury secretary Robert Rubin is responsible for coining the phrase “international financial architecture” in a speech at the Brookings Institution in 1998, I deserve some of the blame for popularizing it.2 I used it in the title of my 1999 book, Toward a New International Financial Architecture, published by the Peterson Institute.3 I say blame because the term architecture conveys a rather misleading sense of the nature of the process. Mirriam-Webster’s on-line dictionary defines architecture as “a unifying or coherent form or structure” (as in “this novel displays an admirable architecture”).4 In other words, the term implies a unity and coherence that financial markets, institutions and policies do not possess. Alternatively, Mirriam-Webster defines “architecture” as “a formation or construction resulting from or as if from a conscious act.” But many of our international arrangements have, in fact, evolved as unintended consequences of past actions rather than as the result of anyone’s conscious act, “as if” or otherwise. The post-Bretton Woods exchange rate system, starting in the 1970s and extending through the present day, was more the product of the inability of policy makers to agree on the form that the exchange rate system should take than the result of any conscious decision. Consider current efforts to strengthen the international financial architecture. Do they reflect conscious action and are they likely to deliver the unity and coherence connoted by the label? Conscious action there certainly is, but it is decentralized and imperfectly coordinated.
    [Show full text]
  • Fed Chair Power Rating
    Just How Powerful is the Fed Chair Fed Chair Power Rating Name: Date: Directions: Sports fans often assign a “power rating” to teams and players to measure their strength. In today’s activity, we will research some of the most recent chairs of the Federal Reserve and assign them “power ratings” to express how truly influential they have been in the United States economy. In this activity, we will judge each person’s prerequisites, ability to play defense and offense. Chair (circle one): Janet Yellen Ben Bernanke Alan Greenspan Paul Volcker 1. Prerequisites will be measured by academic background, research, and previous career qualifications. 2. Offensive acumen will be evaluated using the chair’s major accomplishments while in office and whether he/she was successful in accomplishing the goals for which he/she was originally selected. 3. Defensive strength will be determined by the chair’s ability to overcome obstacles, both in the economy and political pressures, while holding the chairmanship. 4. The chair in question may receive 1-4 points for each category. The rubric for awarding points is as follows: 1 - extremely weak 2 - relatively weak 3 - relatively strong 4 - extremely strong 5. BONUS! Your group may award up to 2 bonus points for other significant accomplishments not listed in the first three categories. You may also choose to subtract up to 2 points for major blunders or problems that emerged as a result of the chair’s policies. 6. This is a group activity, so remember that you and your team members must come to a consensus! Prerequisites Offensive Acumen Defensive Strength Other Details Power 1 2 3 4 1 2 3 4 1 2 3 4 -2 -1 0 +1 +2 Rating Overall Power Rating is __________________________________ 1 Just How Powerful is the Fed Chair Fed Chair Power Rating Strengths Weaknesses Overall Impression Janet Yellen Ben Bernanke Alan Greenspan Paul Volcker 2 .
    [Show full text]
  • August 5, 2021 the Honorable Janet Yellen Secretary of the Treasury
    August 5, 2021 The Honorable Janet Yellen The Honorable Katherine Tai Secretary of the Treasury United States Trade Representative 1500 Pennsylvania Avenue, NW 600 17th Street NW Washington, DC, 20220 Washington, DC 20508 Dear Secretary Yellen and Ambassador Tai: On behalf of the undersigned organizations, we write to express our support for continued engagement with China on trade and economic issues, including full implementation of the U.S.-China Phase One Trade Agreement (“Phase One”), and swift action to address the costly and burdensome tariffs and retaliatory tariffs. We support the Biden Administration holding China accountable to its Phase One commitments, and we strongly urge the Administration to work with the Chinese government to increase purchases of U.S. goods through the remainder of 2021 and implement all structural commitments of the Agreement before its two-year anniversary on February 15, 2022. The Chinese government has met important benchmarks and commitments made in the agreement that benefit American businesses, farmers, ranchers, and workers. For example, the commitment by China to open up its markets to U.S. financial institutions – and other U.S. financial service providers – reflects a hard-won U.S. achievement, and years of work by administrations of both parties. The chapter 3 commitments have been good for American agriculture, addressing most long-standing market access barriers. China has removed market access barriers for some U.S. fruits and grains and for nearly all U.S. beef products, as well as expanded its list of U.S. facilities eligible to export beef, pork, poultry, seafood, dairy, feed additives, and infant formula to China, among other actions.
    [Show full text]
  • Who Should Be the Next Fed Chairman?
    A SYMPOSIUM OF VIEWS THE MAGAZINE OF INTERNATIONAL ECONOMIC POLICY 888 16th Street, N.W. Suite 740 Washington, D.C. 20006 Phone: 202-861-0791 Fax: 202-861-0790 www.international-economy.com [email protected] Who Should Over the next several years, commentators will speculate Be the on the identity of the next Chairman of the Federal Reserve Board of Governors once Alan Greenspan’s Next Fed tenure ends in 2006. Instead of speculation centered on who is likely to be next, per- haps the initial question should relate to who should Chairman? assume the post many describe today as “central banker to the world”? 44 THE INTERNATIONAL ECONOMY FALL 2004 TIE ASKED DOZENS OF EXPERTS Among those mentioned as possible replacements:* Bob Rubin Martin Feldstein Larry Summers Ben Bernanke William McDonough Joseph Stiglitz Lawrence B. Lindsey Robert McTeer Janet Yellen Glen Hubbard David Malpass Robert Barro Ian Macfarlane Bill Gross *Note: Selections made prior to November 2 U.S. presidential election. FALL 2004 THE INTERNATIONAL ECONOMY 45 BARNEY FRANK Member, U.S. House of Representatives, and senior GEORGE SOROS Democrat on the Financial Chairman, Soros Fund Services Committee Management f John Kerry is elected President, I will urge strongly Bob Rubin is by far the most qualified. the appointment of Nobel Prize winner Joseph Stiglitz Ito chair the Fed. That position has become the single most influential office affecting national economic pol- icy, and Stiglitz’s commitment to and understanding of the importance of combining economic growth with a concern for economic fairness are sorely needed. Given the increasing role that globalization plays, his interna- tional experience is also a great asset.
    [Show full text]
  • Meet the New Boss, Same As the Old Boss (Part II)
    Samuel Miller CFA, CAIA Senior Analyst Deron T. McCoy CFA, CFP®, CAIA, AIF® Chief Investment Officer Meet the New Boss, Same as the Old Boss (Part II) Four years ago in our December 2013 SEIA Report titled, “The Federal Reserve: Meet the New Boss, Same as the Old Boss”, we offered reasons why analyzing the human makeup of the Board is so important (hint: they more or less set monetary policy for the world, affecting global capital markets everywhere). We opined that the new incoming Federal Reserve Chair Janet Yellen was very much in line with her predecessor and that her appointment was a “signal to all investors that easy monetary policy will be the policy of choice for the foreseeable future” and “short-term interest rates might be low for another three years extending through 2016.” We concluded by stating “Yellen’s policies should support ‘risk assets’ (Equities, High Yield Bonds, etc.) in the near term with her hopeful goal of higher inflation and economic overheating (not a typo) four years out which will in turn convolute her reappointment process (in 2017).” Four years have now passed and while we can claim victory on our assessment of the stock market, our view of an overheated economy came up a bit short. As such, the reappointment process caused nary a ripple in global markets as the new-new boss is the same as the old-old boss. Who is Jerome Powell? On November 2, 2017, President Trump nominated Jerome “Jay” Powell to be the next Fed chair, providing clarification for the market and lessening monetary policy uncertainty in the near and intermediate term.
    [Show full text]
  • What Have We Learned Since October 1979? by Alan S. Blinder Princeton
    What Have We Learned since October 1979? by Alan S. Blinder Princeton University CEPS Working Paper No. 105 April 2005 “What Have We Learned since October 1979?” by Alan S. Blinder Princeton University∗ My good friend Ben Bernanke is always a hard act to follow. When I drafted these remarks, I was concerned that Ben would take all the best points and cover them extremely well, leaving only some crumbs for Ben McCallum and me to pick up. But his decision to concentrate on one issue—central bank credibility—leaves me plenty to talk about. Because Ben was so young in 1979, I’d like to begin by emphasizing that Paul Volcker re-taught the world something it seemed to have forgotten at the time: that tight monetary policy can bring inflation down at substantial, but not devastating, cost. It seems strange to harbor contrary thoughts today, but back then many people believed that 10% inflation was so deeply ingrained in the U.S. economy that we might to doomed to, say, 6-10% inflation for a very long time. For example, Otto Eckstein (1981, pp. 3-4) wrote in a well-known 1981 book that “To bring the core inflation rate down significantly through fiscal and monetary policies alone would require a prolonged deep recession bordering on depression, with the average unemployment rate held above 10%.” More concretely, he estimated that it would require 10 point-years of unemployment to bring the core inflation rate down a single percentage point,1 which is about five times more than called for by the “Brookings rule of thumb.”2 In the event, the Volcker disinflation followed the Brookings rule of thumb rather well.
    [Show full text]
  • The Ben Bernanke and Janet Yellen Investment Portfolios | Seeking Alpha 7/31/15, 5:33 PM
    The Ben Bernanke And Janet Yellen Investment Portfolios | Seeking Alpha 7/31/15, 5:33 PM The Ben Bernanke And Janet Yellen Investment Portfolios "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years" - Warren Buffett When it comes to financial security, one could argue that the chairman of the Federal Reserve Board of Governors would be a great role model to emulate. As an obligation of duty, the chairman and all members of the board are required to disclose their assets and income to the U.S. Office of Government Ethics. U.S. President Barack Obama made it clear that when Ben Bernanke's second term expires on 1-31-2014, there will be a new chairman of which current Vice Chairman of the Board of Governors, Janet Yellen, is the current front-runner. By analyzing their respective investment portfolios, one can gain insight into astute money management techniques as well as their individual stock selections. The Man On February 1, 2006, Ben Bernanke was sworn in as a 14-year term member of the Federal Reserve Board of Governors, as well as Fed Chairman, which was a 4-year term. U.S. President Bush appointed him just before the beginning of the Global Financial Crisis, where Bernanke, along with U.S. Treasury Secretary Henry Paulson and the president of the Federal Reserve Bank of New York Timothy Geithner organized the economic bailout that arguably sidelined a global depression.
    [Show full text]
  • Wage Inflation Is Beginning to Turn Up, but Yellen Will Still Run the Economy “Hot.”
    Good News for the Fed Wage inflation is beginning to turn up, but Yellen will still run the economy “hot.” oming into to its March meeting, there was little mystery about what the Fed would do—nothing— but a lot of interest and a wide range of opinion By Richard H. Clarida about how it would communicate a decision to keep rates on hold. Speculation focused on three key communications: n The “dot plot”—that is, the Federal Open Market Committee participants’ assessments of the appropriate policy rate Cover the coming years; n The balance of risk assessment; and n The Summary of Economic Projections for inflation, unemploy- ment, and NAIRU (non-accelerating inflation rate of unemployment). The biggest surprise on Fed day was that the median of the dots now in- dicates only two more rate hikes for 2016, down from the four hikes in 2016 projected at December’s meeting. This had the effect of moving the Fed dot plot liftoff path for 2016 and 2017 closer to market pricing, but with the latter still well below the former. As for balance of risk, whereas in January the Fed said that it was “closely monitoring” global developments and was “assessing” their implications, in the March statement the Fed has apparent- THE MAGAZINE OF INTERNATIONAL ECONOMIC POLICY ly finished their assessment and now concludes that “global economic and 220 I Street, N.E., Suite 200 Washington, D.C. 20002 Richard H. Clarida is C. Lowell Harriss Professor of Economics and Phone: 202-861-0791 Fax: 202-861-0790 International Affairs at Columbia University and Global Strategic www.international-economy.com Advisor to PIMCO.
    [Show full text]
  • Janet Yellen
    SESSION 4 (ROUND TABLE) TOWARDS WHICH INTERNATIONAL MONETARY SYSTEM? Janet Yellen Janet YELLEN Vice Chair of the Board of Governors Federal Reserve System Nearly four decades have elapsed since the demise of exchange rates, reserve accumulation, and other Bretton Woods, and during that time, the international shortcomings in the operation of the international monetary and fi nancial system has undergone a monetary system– put downward pressure on real signifi cant transformation. The changes that have interest rates, in turn boosting asset prices (particularly occurred refl ect deliberate policy choices by the for housing) and enhancing the availability of credit. offi cial sector as well as the organic interactions of These developments contributed signifi cantly to the investors, institutions, and advancing technologies. buildup of fi nancial imbalances, but they were not, Judging by the standards of global economic on their own, suffi cient to have engendered the growth, stable prices, and fi nancial stability, the massive fi nancial crisis we experienced. international monetary and fi nancial system, in its current incarnation, has a decidedly mixed record. Had the additional domestic credit associated with Wrenching crises and economic distress, notably these capital infl ows been used effectively, the including the diffi cult experience of the past several imbalances need not have led to fi nancial ruin. In years, have punctuated periods of solid growth, low the United States and other countries with current infl ation, and fi nancial stability. Thus, the subject account defi cits, however, borrowing too often of today’s discussion is vitally important, and I am supported excessive spending on housing and pleased to contribute my thoughts on steps we can consumption, rather than fi nancing productive take to improve our international economic order.1 investment.
    [Show full text]
  • Arthur Burns and G. William Miller: the Hapless Inflators
    Excerpt from Fed Watching for Fun and Profit Edward Yardeni March 2020 Chapter 3 Arthur Burns and G. William Miller: The Hapless Inflators Fueling the Great Inflation Arthur Burns served as Fed chair from February 1, 1970 to January 31, 1978 under Presidents Richard Nixon, Gerald Ford, and Jimmy Carter. Burns was an academic, and the first PhD macroeconomist to head the Fed. He taught economics at both Rutgers University (starting in 1927) and Columbia University (1945), having earned his PhD at the latter. As a doctoral student at Columbia, Burns studied under Wesley Clair Mitchell, a founder of the National Bureau of Economic Research (NBER) and its chief researcher. Mitchell brought Burns into the NBER, where Burns began his lifelong research into the business cycle. Together, in 1946, they published Measuring Business Cycles, which introduced the characteristic NBER methods of analyzing business cycles empirically.32 It was Burns who started the NBER’s academic tradition of determining recessions—a role that has been continued by the organization’s Business Cycle Dating Committee. The NBER remains the preeminent authority on dating recessions.[33] Burns served as president and chair of the NBER at points throughout his teaching career. He also chaired the Council of Economic Advisers (CEA) from 1953 to 1956 under President Dwight Eisenhower. The CEA was established by the Employment Act of 1946, which stated that it is the responsibility of the federal government to create “conditions under which there will be afforded useful employment for those able, willing, and seeking work, and to promote maximum employment, production, and purchasing power.” The CEA was created to help President Eisenhower and successive Presidents make sure another Great Depression would never happen.
    [Show full text]
  • FEDERAL RESERVE SYSTEM the First 100 Years
    FEDERAL RESERVE SYSTEM The First 100 Years A CHAPTER IN THE HISTORY OF CENTRAL BANKING FEDERAL RESERVE SYSTEM The First 100 Years A Chapter in the History of Central Banking n 1913, Albert Einstein was working on his established the second Bank of the United States. It new theory of gravity, Richard Nixon was was also given a 20-year charter and operated from born, and Franklin D. Roosevelt was sworn 1816 to 1836; however, its charter was not renewed in as assistant secretary of the Navy. It was either. After the charter expired, the United States also the year Woodrow Wilson took the oath endured a series of financial crises during the 19th of office as the 28th President of the United and early 20th centuries. Several factors contributed IStates, intent on advocating progressive reform to the crises, including a number of bank failures, and change. One of his biggest reforms occurred which generated waves of bank panics and on December 23, 1913, when he signed the Federal economic instability.2 Reserve Act into law. This landmark legislation When Jay Cooke and Company, the nation’s created the Federal Reserve System, the nation’s largest bank, failed in 1873, a panic erupted, leading central bank.1 to runs on other financial institutions. Within months, the nation’s economic problems deepened as silver A Need for Stability prices dropped after the Coinage Act of 1873 was Why was a central bank needed? The nation passed, which dampened the interests of U.S. silver had tried twice before to establish a central bank miners and led to a recession that lasted until 1879.
    [Show full text]