Fed and Global Monetary Policy - Vocabulary Flashcards

Vocabulary flashcards covering the Fed's organizational structure, policy tools, crisis interventions, and global monetary policy concepts as presented in the notes.

Federal Reserve (the Fed)

The central bank of the United States that conducts national monetary policy to achieve full employment and price stability, and influences interest rates and financial markets.

Federal Open Market Committee (FOMC)

The Fed body that sets monetary policy; meets eight times a year; aims for stable economic growth and low inflation; comprises the seven Board of Governors and presidents of five district banks.

Board of Governors

A seven‑member board appointed by the President with 14-year nonrenewable terms; oversees monetary policy, sets reserve and margin requirements, and reports to Congress.

Consumer Financial Protection Bureau (CFPB)

Independent agency inside the Fed established by the Financial Reform Act of 2010; regulates financial products and services (e.g., online banking, CDs, mortgages).

Federal Reserve District Banks

Twelve district banks (New York is the most important); member banks own stock in their district bank (nontradable) with up to 6% dividend; districts clear checks, replace currency, provide discount window loans, and conduct research.

Discount Window

Fed lending facility providing short‑term loans to depository institutions; used for liquidity needs and crisis situations; not the primary monetary policy tool today.

Open Market Operations (OMOs)

Fed's buying and selling of securities to influence the money supply and the federal funds rate; executed by the Trading Desk; can be dynamic (lasting impact) or defensive (temporary).

Trading Desk (Open Market Desk)

The New York Fed unit that implements OMOs; purchases securities to lower the federal funds rate and sells to raise it; performs dynamic or defensive operations.

M1

Money supply measure consisting of currency in circulation plus checking deposits; most volatile.

M2

M1 plus savings deposits, MMDAs, overnight repurchase agreements, Eurodollars, and small time deposits.

M3

M2 plus large time deposits and institutional money market funds; broader measure of money supply.

Reserve Requirement

Portion of bank deposits that must be held as reserves; set by the Board; affects how money supply changes in response to deposits; typically used less frequently in practice.

Primary Credit Rate

Interest rate charged to the most creditworthy depository institutions under the Fed's lending facility.

Secondary Credit Rate

Higher interest rate charged to depository institutions that are less creditworthy.

Bear Stearns bailout

Fed provided liquidity through the discount window in 2008 to Bear Stearns to avert bankruptcy and facilitate a sale to JPMorgan Chase.

Quantitative Easing (QE)

Large‑scale purchases of securities (e.g., mortgage‑backed securities and long‑term Treasuries) to inject liquidity and lower long‑term interest rates; involved various emergency facilities.

Term Asset-Backed Security Loan Facility (TALF)

Fed facility created to provide financing to institutions purchasing high‑quality asset‑backed securities backed by consumer, credit card, or auto loans.

Mortgage-Backed Securities (MBS)

Securities backed by mortgage loans; purchased by the Fed as part of QE to support the housing market.

Commercial Paper purchases

Fed purchases of short‑term corporate debt to stabilize liquidity during the crisis.

Global Monetary Policy

Each country has its own central bank; they use tools like open market operations and reserve adjustments; U.S. policy can influence global conditions.

European Central Bank (ECB)

Central bank for the eurozone; sets monetary policy for euro‑using countries with goals of price and currency stability.

Eurozone monetary policy limitations

All eurozone countries share a single policy, limiting individual countries’ ability to pursue their own monetary policies; policy may help some countries while hurting others.

Beige Book

Pre‑meeting economic report summarizing regional economic conditions from the Federal Reserve Districts; used by the FOMC.

Fed’s influence on interest rates

Through open market operations and money supply changes, the Fed affects yields on deposits, loans, Treasuries, and other securities, influencing borrowing costs.