While national attention is typically focused on the actions of Federal Reserve Chairman Ben Bernanke and the Board of Governors in Washington, D.C., Fed structure dictates an integral role for regional Reserve banks in keeping prices stable and the economy growing. As one of 12 regional Reserve banks, the Federal Reserve Bank of St. Louis contributes to the policy debate about how to revive the flagging economy primarily through its president’s participation on the Federal Open Market Committee (FOMC). In 2008, this debate was one of the Bank’s highest priorities.
In a typical year, the FOMC meets eight times. At each meeting, the committee establishes a target or range for the federal funds rate, which is the interest rate that banks charge each other for overnight loans. For many years, the fed funds rate target has been the Fed’s primary monetary policy tool. During 2008, that policy tool would prove to be only one of many tools employed, as the Fed began shifting its emphasis from influencing short-term interest rates to improving the functioning of credit markets and increasing the supply of credit to households and businesses.
For Bank President Jim Bullard, who took over the helm of the St. Louis Fed in April 2008, the year proved anything but normal. Regular FOMC meetings were supplemented by overnight and weekend conference calls, as swiftly unfolding financial market events dictated an equally swift policy response from the U.S. Treasury or the Federal Reserve. Overall, the Fed moved decisively in response to market events.