In an article dated April 7, 2012, it stated that Brian Sack, a key trader with the Federal Reserve Bank of New York, has resigned his post. Per the article:
| Brian Sack |
One of the key stewards of the Federal Reserve's unconventional monetary stimulus is parting ways with the central bank, a move that stunned Wall Street and left large shoes to fill in its all-important market trading section. Brian Sack, head of the markets group at the Federal Reserve Bank of New York, has tendered his resignation, according to a release Thursday from the New York Fed. Sack, 41, will stay in his current post until June 29, when the Fed's latest monetary stimulus program, known as Operation Twist, is set to expire. He will then be placed on leave until Sept. 14, during which he will have limited contact with the bank, the release said.
The departure comes as debate grows over the future of the ultra-easy monetary policy pursued by the Fed since the 2008-09 financial crisis. Investors and bond dealers are now intently questioning whether the Fed is prepared to embark on a third bond-buying program to boost the economy or is preparing for an eventual unwinding of those policies to tighten monetary conditions. With the economy improving, the question remains whether growth can remain sufficiently healthy without further monetary support while threats to the economic and investment climate continue from sources such as the euro zone's sovereign debt crisis.
"I'm dumbfounded," said Raymond Stone, co-founder of Stone & McCarthy Research Associates, which closely tracks Fed policy. "He laid the groundwork for a lot of things the Fed has done and communicated clearly to the market. He did an excellent job in a difficult environment."Per our reading in Chapters 9, 10 and 11 in the Rittenberg/Tregarthen Macroeconomics Book, The Federal Reserve serves as the US Central Bank and is the main agent of Monetary Policy. The New York Federal Reserve has a permanent seat on the Federal Reserve Open Market Committee, which is in charge of conducting open market operations.
Questions for Discussion:
1. What is the goal of Easy Monetary Policy? Why has the Federal Reserve been enacting it since 2008/2009? Has it been successful? Why or Why not?
2. What are open market operations? How are they done in easy mode of Monetary Policy? How to they affect interest rates, total spending the overall economy?
3. Why does the New York Federal Reserve have a permanent seat on the Open Market Committee? How does this change in a Key Bond Trader potentially impact Open Market Operations?
As always, thoughtful comments and questions are welcomed.
Success to you all!
Prof. Hank Lewis
The goal of easy monetary policy is to encourage consumers and businesses to spend more. The federal reserve has been applying the easy mode of monetary policy the last few years becuase of the serious negative shock that the economy recieved in 2008 and 2009. It seems to have been affective. In another class we recently analyzed the financial reports for major manufacturing companies. We looked at companies such as, John Deere, Catipillar, Apple, Valspar and Dupont. In each of these companies thier has been an increase in revenues as growth since mid to late 2009. This is one indicator that the easy monetary policy has been working.
ReplyDeleteOpen Market Operations are the selling and buying of government securities by a central bank, like the Federal Reserve, in order to control money supply. Central banks buy and sell reserves in exchange for money on deposit accounts at the central banks. Then the deposits are easily converted in to useable currency. Currency and deposits are liabilities to the central bank. Cash and reserves are liquid assets to a bank. Banks other than the central bank can use money as a reserve and increase the amount of money they have. Interest rates will increase when people get loans because when you pay back a loan you pay interest on it. People's total spending should decrease because they own money, therefore they have to spend less.
ReplyDeleteThe goal of easy monetary policy is to encourage spending and increase the money supply (M1). In 2008, when the economy fell into a recession, the fed realized that the key to getting out of a recession is to increase total spending. Now, monetary policy is not as effective as employing fiscal policy, but when a severe recession hits it may be necessary to couple the two and pull out all stops. Although a painfully tedious recovery, it is a recovery nonetheless. This does give some evidence that the policies enacted have been somewhat successful combined with market self-correction.
ReplyDeleteAn open market operation (OMO’s) is when the Fed sells/buys government securities on the open market. When the Fed initiates easy mode monetary policy, they buy back the securities which in turn increase M1. With an increase in the overall money supply, there is a drop in interest rates which increases total spending because people are saving less.
New York is one of the financial hub cities of the world. It is also the financial capitol of the US. The Federal Reserve in New York is at the heart of all economic operations for the country; thus, giving them a permanent seat on the committee. Brian Sack’s influence on monetary policy is important because of his position in the New York Federal Reserve. The policy enacted here, has a great influence on the entire economy. Therefore, Sack’s successor may take a different approach when it comes to OMO’s.
Mr. Simpson, Ms. Christensen and Mr. Daniels:
ReplyDeleteThese are very intelligent responses and commentary. Good job all of you.
Prof. Lewis