The Federal Reserve: What Everyone Needs to Know®

by Stephen H. Axilrod

The Federal Reserve System--the central bank of the United States, better known as The Fed--has never been more controversial. Criticism has reached such levels that Congressman Ron Paul, contender for the Republican presidential nomination in 2012, published End the Fed, with blurbs from musician Arlo Guthrie and actor Vince Vaughn. And yet, amid a slow economy and partisan gridlock, the Fed has never been more important.Stephen H. Axilrod explains this influential agency-its powers, operations, how it sets policy-in The Federal Reserve, a timely addition to Oxford's acclaimed series, What Everyone Needs to Know?. Of the two major governmental tools for shaping the economy, Congress controls fiscal policy-taxation and spending-and the Fed makes monetary policy-influencing how much money circulates in the economy, and how quickly. Traditionally the Fed has relied on three open-market operations (buying and selling U.S. bonds), lending to banks, and setting reserve requirements on bank deposits. It also helps to regulate the financial system. Drawing on years of experience inside the Federal Reserve System, Axilrod shows how these tools actually work, and answers a series of increasingly detailed questions in the series format. He asks, for instance, if the system of regional Fed banks needs modification for today's technological landscape; if there is corruption in the Fed's governance; what happens to profits from its operations; the impact of political pressure; the extent of Congressional oversight; and just how independent it truly is. Whether discussing the Fed's balance sheet through the financial crisis of 2008 and beyond, the federal funds rate, or the international context, Axilrod displays a mastery of his subject.Coming in time for the Fed's 100th anniversary in 2013, this book deftly explains an institution that every American needs to understand.What Everyone Needs to Know? is a registered trademark of Oxford University Press.

Genres: Economics, Government

155 pages, Kindle Edition

First published January 1, 2013

Reviews

[Jdb · Rating 4 out of 5]

A clear and balanced explanation of how the Fed operates, its mandates, limitations, and challenges.

The author organizes the book in a question and answer format, which I found helpful.

A nice summary is this quote from the book: “ It should be recognized that the Fed’s freedom of action and effectiveness is influenced and limited not only by the reach of its powers but also by a whole host of factors outside its control. In short, the Fed is one important agent influencing the nation’s credit markets and economy, but it functions within an economy and society susceptible to many other powerful influences- social, political, and economic- that strongly bear on financial and economic conditions,”

["Greg Adkins" · Rating 3 out of 5]

"What Everyone Needs to Know" is a sub-title which smacks of publisher intervention. "What a small select group of people who are researching this topic either out of academic interest or a direct business-related need should probably know if they don't want to sound like an asshole" is probably a better descriptive, but admittedly less catchy.

[Jay Mawicke · Rating 4 out of 5]

Pretty short but in-depth introduction into the federal reserve. Obviously an extremely dense book, it introduced key facets of the Fed’s systems and goals well. Recommend if you want an introduction into how the Federal Reserve manages the US economy, nothing really more in depth than that.

[Diffusion Tensor · Rating 2 out of 5]

This is a brief primer (about 130 pages of main text) on the Federal Reserve System, which celebrates its 100th anniversary in the year the book was published (2013). The author had a lengthy career as a Fed official, followed by a senior position at a securities firm, and finally service as an independent consultant. The first five chapters introduce the Fed and then focus on its conduct of monetary policy. The goals and methods of monetary policy are discussed, including the dual mandate (employment and price stability), implicit goals (eg, systemic stability of the financial markets), open market operations, the discount window, and reserve requirements. Of particular interest is Chapter 5, "The Formulation and Communication of Monetary Policy," which focuses on the Federal Open Market Committee (FOMC). This chapter delves into the nuts and bolts of a routine FOMC meeting, such as the typical meeting agenda, the kinds of materials prepared for committee members by the staff, the role of the chairman, and the way policy decisions are communicated to the public. Chapter 6 is a medley, discussing the varying roles and effects of monetary and fiscal policy together, the Fed’s regulatory responsibilities, and the influence of global conditions on Fed policy. The final chapter examines two exceedingly important case studies: the inflation crisis of the 1970s and the more recent credit crisis of 2007-2009. The book delves into the Fed’s role both in the creation of, and recovery from, both crises. The more recent crisis has highlighted the importance of the regulatory role of the Fed, which has subsequently been both enhanced and limited in different ways by the Dodd-Frank Act. Unlike in monetary policy, where the Fed acts alone, in the regulatory arena the Fed is but one among many agencies (albeit a particularly influential one). Little or no discussion is provided for the more mundane tasks of the Federal Reserve System, such as its nationwide payments and check clearing systems, and its storage of gold, both for the U.S. and foreign governments, deep under the New York Fed building.

The book includes the author’s personal views on the recent financial crisis, from which we are still recovering as I write. For instance, he writes of the causes of the crisis (p. 59): "Regulatory laxness in the housing market (among others) and widespread tolerance of excess leverage by key financial executives in highly interconnected markets are among them. But high on this writer’s list would be the apparent inability of those at the helm of governmental and large private institutions to sense the magnitude of the crisis that might come and, once it came, the evident hesitancy and lack of preparedness shown in dealing with it. The loss of confidence [in financial institutions, the government, the Congress, and the Fed] made the recession much more severe than it need have been and contributed to the long-lasting sluggishness of the recovery." Addressing the Fed’s role in particular, the author cites "a prolonged highly easy monetary policy" under Chairman Greenspan (p. 116), a belief "by a number of powerful officials that markets would resolve their own problems should they arise—as they often (but not always) did" (p. 117), and financial regulation that was "too relaxed in face of the huge technological innovations in finance and the change in attitudes toward credit" (p. 117). Elsewhere in the book, in discussing the role of the Fed chairmen, he says of Chairman Bernanke: "Once the crisis was clearly and unfortunately threatening to get out of hand, he seemed promptly to realize what had to be done and set about organizing to do so. Given the central role of the chairman in coordinating the system-wide effort required, his own energy and leadership appeared crucial" (p. 76). On balance the author believes that the Fed has served the nation "fairly well" in the post-WWII era.

The book might best be read by persons who are not complete novices to economics and finance. A number of basic terms and concepts are not defined or explained. The book might be used well as a supplementary reading for an introductory economics course, or by a reader who has taken such a course and desires a more in depth understanding of the Fed without resorting to one of the many weightier tomes available, including the author’s earlier book, Inside the Fed (2009).

[Fred Kohn · Rating 2 out of 5]

Pretty disappointing. The book offers wide coverage of its topic and not much depth. The author seems to be going out of his way to avoid any technical discussion. The result is that when, for example, it is asserted that the Fed has wide powers to control inflation, we pretty much have to take the author's word for it. I don't regret reading the book, because there were many points of interest. In particular, I enjoyed the discussion of how the regulatory powers of the Fed have changed under Dodd-Frank. It is a toss-up whether I will read Axilrod's earlier and slightly longer book Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke, Probably I will, but only after getting the taste of this one out of my mouth.