“I hate the FED. They’re so stupid. They think they can do whatever they want. I would like to see them work minimum wage jobs and try to support a family,” my friend said during lunch last week. We had been kicking around predictions for the job market when we graduate in June. I had expressed interest to work for the government, at a state level, when she spewed out a sentence that caused my brain to explode.
As a journalism student I am very accustom to my peers not knowing anything about the United States Government, or any entity partially associated with government.
In my first year of college, I was surprised people didn’t know all 50 states and their capitols. Or even how the three branches of government work at a basic level. Now that I have spent four years at college it doesn’t surprise me that the average 20 year-old doesn’t have a clue about anything remotely related to government.
I guess what bothered me the most was my friend (who is very smart in her respected field of study) disqualified a life-sustaining function of our nation while inadvertently displaying a shocking ignorance of the subject. But this problem isn’t just limited to my friend, some people don’t understand the function of the Federal Reserve. This could be clearly seen during the financial crisis of 2008 and subsequent bailouts of big-name companies. Some Americans believed the Federal Reserve was trying to help the rich and not the poor.
Before this blog post continues I want to give a very brief overview of the Federal Reserve’s function – at a very basic level.
1. The United States Federal Reserve serves interdependently from the United States Government. History has show that the more independent a central bank is, the lower a the inflation rate. This is because if the central bank doesn’t have interdependency from the government, the government could pressure the bank to print more money. Tax revenue the government collects by printing “new” money without a new new technology is called seigniorage. Seigniorage gives the appearance that a country’s GDP is rising when in reality the GDP is inflated.
2. Money amounts in the United Sates economy are influenced by monetary or fiscal policies. Congress controls fiscal policies which entails increasing or decrease government spending and increasing or decreasing taxes. Monetary policies are controlled by the Federal Reserve. Monetary policies are increasing or decreasing the money supply (how much paper money is allowed to float around and how many government bonds are for sale). Monetary policy also targets the interest rate. Currently the long-term interest rate target is 2 percent. However a shorter target is between 0 and 0.25 percent. The Federal Reserve will continue to decrease the money supply until unemployment falls below 6.5 percent aka when there isn’t involuntary unemployment.
3. The Federal Reserve is the lender of last resort. It insures that people will still have money in the bank even if the bank “goes bankrupt”. Banks and credit unions are required to hold a percentage of your money and not lend it out. At the end of the day they must have enough money for everyone to be able to withdraw some money. If they don’t, they need an overnight loan from another bank. Banks can always borrow from the Federal Reserve but most don’t because it has become a public indicator that a bank is in financial trouble.
4. See illustration
Is your brain about to explode? My friend looked green after I carefully explained the function of the Federal Reserve. Our interaction got me thinking about image management and I was awestruck at the idea that the Federal Reserve needed public relations.
Fortunately there is a woman already doing pr for the FED. Her name is Michelle Smith and she is the Fed’s chief of staff and runs the office of public affairs. She helped the Federal Reserve become open to the media and reassure Americans the Fed was trying to help the working class. Smith encouraged the Fed chairman Ben Bernake to speak with reporters and be available for inquiries. (Bernake stepped down as the Fed Chairman on January 31, 2014 and was succeeded by Jenet Yellen on February 1).
“A professor of economics, Bernanke was easily made nervous in public. It didn’t help that on at least one occasion, he had moved markets with an unintentional statement. As a matter of policy, he thought the Fed should be more transparent about its intentions and speak to the public in clearer language, but he chafed at the idea that the Fed chairman was seen as synonymous with the institution.”
Smith helped coordinate the Fed’s efforts to become transparent during the financial crisis. This included making the Federal Reserve functions clear and understandable. The hope was that if Americans could understand the math and theory behind the bailout then they wouldn’t be as angry as the mass media was portraying. In addition, being available for news conferences and “dumbing down” press releases the Fed hoped to educated the mass media about economics so that the media could effectively disseminate information to their audiences.
“It became clear after the crisis broke out that the Fed was under attack for favoring Wall Street instead of Main Street. [Smith] was particularly helpful in thinking about how the chairman [Bernanke] could be used used more effectively to counter this argument” – Former Vice Chairman Donald Kohn
Smith advised Bernake to appear on “60 Minutes” after which he took questions at the National Press Club and appeared on “PBS NewsHour“. To see a full list of appearances and speeches in 2009 click here.
Bernake also toured colleges and gave lectures.
All of this effort has been to make the Federal Reserve more transparent. So how is this corporate social responsibility (the topic of my blog)? I am glad you asked! Corporate social responsibility has many parts, but here we see an organization, a government organization, recognize their brand image needs polishing so they can be known for doing good. The Fed took steps to repair loyalty to its consumers, (which by the way, consumers don’t have any power over the Federal Reserve) all in the name of image building. I say the Federal Reserve is definitely practicing good CSR and I can’t wait to see how Yellen will continue CSR for the Fed.