Dialogue with the Fed—Inside the FOMC

Matuschka Lindo Briggs: Good afternoon and thank you for joining us for Dialogue with the Fed – Inside the FOMC. My name is Matuschka Lindo Briggs, and I’m the regional executive of the Little Rock Branch of the Federal Reserve Bank of St. Louis. Joining me today as we take a look at what happens inside the FOMC, also known as Federal Open Market Committee, are two of my colleagues, Amanda Geiger and Kathleen Navin.

Amanda is a senior economic education specialist. She creates educational content about economics, the Federal reserve and personal finance. She also shares that content with K through 12 students, college students and their educators.

Kathleen is a senior business economist in the St. Louis Fed Supervision Division. Her primary focus is analyzing and presenting on economic and banking conditions in the United States and regionally.

So, lots of expertise and resources around the table with me today, as we talk through how decisions are made, what they mean for the economy, and really why it should matter to you.

Before we begin our discussion, a few words about today’s session. It’s a part of our ongoing Dialogue with the Fed series where our goal is always to connect you with experts and information, to better understand the economy. Throughout the discussion today you can ask us questions by using Zoom’s Q&A feature found at the bottom of your zoom window. To do this, enter your question into the Q&A Box, then click send – that’s it.

After the presentation, we’ll answer those questions with this time and whatever time we have left.

Finally, before we get started, a quick reminder that the views expressed today are those of the respective speakers, including myself, and are not necessarily those of the St. Louis Fed, or the Federal Reserve System. With that, Amanda I will let you and Kathleen take the floor.

Amanda Geiger: Thanks, Matuschka, all right. So, before we kind of dive too far into it, let’s talk about what the Federal Open Market Committee is. So, the Federal Reserve is the central bank for the United States. It has three key entities. It was created by Congress in 1913, and it has the Board of Governors, which is the governing body of the Federal Reserve System. They’re headquartered in Washington, DC. And then you have the 12 Federal Reserve District regional banks. They – we’ll talk about them in a second with a map, and then together those two bodies make up the Open Market Committee.

The Board of Governors reports directly to Congress, and it has many important functions, including overseeing the Federal Reserve banks and supervisory functions of other member banks.

The Federal Reserve Banks themselves are the operating arm of the Federal Reserve System. They conduct research about their local and regional economies. They participate in the Federal Open Market Committee. They act as the fiscal agent for the U.S. government, and then more commonly called the “Bank for Banks.”

The Federal Open Market Committee is the monetary policy decision-making body of the Federal Reserve System. The Board of Governors and the district bank presidents together serve on the Federal Open Market Committee.

Monetary policy refers to central bank action that is used to influence the cost and availability of money and credit in the financial system. It does that to meet the large national goals that are set for us. In the U.S., that’s the Federal Reserve, and Congress has set those large economic goals as maximum employment and stable prices often referred to as the dual mandate, or just the mandate of the Federal Reserve.

So how is monetary policy conducted, like what tools does the Federal Reserve have? The primary tools for conducting monetary policy are the administered rates, interest on reserve balances, and the discount rate which affect the interest at reserves on reserve balances, and what banks are charged at the discount window. Open market operations are also an important tool in conducting monetary policy.

So when the Federal Reserve Open Market Committee makes a decision, that policy decision is then implemented down through the Federal Reserve System. They choose how they’re going to target the federal funds rate, which is a market-based rate, which then affects other market rates, which affects consumer spending business investments and overall aggregate demand, and when those things are impacted it has an effect on employment and inflation, which are the measures we use to measure the mandate right maximum employment and stable prices.

Because this session is focused on the FOMC itself, we’re not going to delve too deeply into monetary policy. But if you’d like to learn more about how that toolbox I showed on the previous slide actually works its way through the economy and does influence maximum employment and stable prices, you can learn more at federalreserveeducation.org, and we’ll drop that link in the chat.

There you can watch videos, go through modules, have articles and readings about the monetary policy tools, the switch between limited to ample reserves and how the Federal Reserve System is set up.

Okay, so let’s talk about who serves on the Federal Open Market Committee. So, the Board of Governors: there are seven governors. They’re appointed by the President and then confirmed by the Senate for a one time, 14-year term.

When the Federal Reserve was established, there was a very delicate balance between regional interests and national interests. When Congress created it, they wanted to make sure that the diverse perspectives of the United States were represented in policy making decisions. So, the Board of Governors are political appointees. They’re appointed by the President, confirmed by the Senate, but they are set up structurally to try to create an independent body in not dissimilar way to the way the Supreme Court is established, but instead of lifetime appointments, you have long 14-year appointments so they can focus on those long-term economic goals of maximum employment and stable prices.

And they can do so it’s a one-time term. So, there’s not an effort or any kind of incentive towards reappointment or reelection. They’re also on staggered terms which helps create stability in the financial system, as it’s a slow cycle. About every two years a governor’s term expires, and a new governor is appointed. So, you have a lot of consistency over time, so that they can maintain their focus on those monetary policy long term goals.

The chair – Chair Powell is probably the most well-known of the governors, because his role is to serve as the spokesperson for the Federal Reserve system and for the Federal Open Market Committee, as he also serves as the chair of that body.

Additionally on the Federal Open Market Committee, you have the 12 District Bank presidents. So, the 12 districts are spread out over the United States. And so, you have a diversity of perspectives and a diversity of economies that are represented. The United States is very large and very diverse. Our economies regionally can be very different from each other. And while they often have some of the same challenges, they may be experiencing them in slightly different ways. So, your regional bank presidents provide expertise on what’s happening in their local areas that they bring to the policymaking table in that discussion at the FOMC. So together, you’ve got your seven governors, plus your 12 District Bank presidents.

They all participate in the FOMC meeting. So, eight times a year or more, if needed, the Federal Open Market Committee meets to decide what they’re going to do with the target federal funds rate, what open market operations they’re going to pursue. They also discuss the size and the asset allocation of the Federal Reserve’s balance sheet, and then they also decide how they’re going to communicate that to the public. When the meeting is held, all19 members participate in the discussion. So, all 12 bank presidents and the governors discuss current economic conditions. They look at data and analysis, and they make that discussion together, but only 12 of the members vote at each meeting.

There are eight permanent votes. All seven governors vote at every FOMC meeting. The president of the New York Federal Reserve also votes at every meeting, because this is where the open market operation trading desk is. New York actually enacts the open market trade. So, they have a permanent voting slot.

The other four votes rotate through an annual cycle, as you can see here. Now, this is not as interactive as we would hope. But in the chat, we’re going to drop a link to an interactive version of this map that you can see, so you can see how the voting might shift from year to year. So, all 19 participate, but only 12 vote at any given time.

Matuschka it sounded like you might have a question, so I wanted to pause there and give you a chance.

Lindo Briggs: I didn’t have a question. I just wanted to share that I am sorry I’m not in the studio with both of you, but I am actually here at 33 Liberty in New York City. So, the heart of the financial market so exactly what you said due to international markets in the heart of financial market, that is why President Williams votes every year. So, I forgot to even mention that I was sitting here in the New York office. So that was an excellent point.

Geiger: Thank you, and I’m so glad that you can still join with us. So, when the 12 vote they then that decision is then communicated to the public. So we’re going to pause here in that cycle and talk about how these district bank presidents actually prepare themselves to represent their local and regional economies at this meeting, and for that, we’re actually going to turn it over to Matuschka because she is an integral part of that preparation for our president in participating on the FOMC.

Lindo Briggs: Absolutely so in our role, really, when you think of the information that they receive, they receive that quantitative data as well as research and there’s a six-week lag to that.

So, what they do like is the qualitative data. And that is what we are out, boots on the ground doing. And there’s many ways that we do that. But when we’re out there doing that, it’s definitely an economic exchange. So, we’re trying to also get information and share information. And I think we have a slide here that I can show kind of our key ways of doing that.

So, the first thing that we focus on is: we have directors. So, all of us have board of directors. The headquarter office does of the district as well as the branches. So, we all have directors that we share that information with, and they help us in reaching the information. We also have Industry Council. So, we have a healthcare Council, a real estate council, a transportation council, as well as an ag council. So, we’ll gather those people and understand what’s going on in the district, and they’ll come and share the information. So, we understand the pain points their challenges and what’s happening. Along with those councils we have roundtables. So, I’ll go out across the district, as other regional executives will, and we’ll have roundtables with a manufacturing industry, or maybe a retail industry, and these can range from 15 to 12 people.

And just to understand again the insights. So, what I have to say is what it’s about, really, how we understand what’s happening is it starts with boots on the ground. So, we work on boots on the ground up. So, it’s really the voice of Main Street that is so important. It’s the behavior, what’s happening, what’s happening with supply chain? What’s happening in the industry? Are consumers buying? What do jobs look like? So, we take all of that information. So that’s one way that we do. And that’s probably our most focused way of doing it, as well as one-on-one. I have very many one-on-one meetings, whether it’s with bankers, academia and what have you.

A second way that we look at stuff is surveys. So, we’ll go out and look at surveys and see what people have we’ll do quarterly surveys, sometimes the Board of Governors will have surveys for us that they want us to share. So that’s our second way of doing it.

And then our third way again, it’s always an economic exchange. So, like I said, we like to give back too. And all this information we gather, which I know we’ll talk about the Beige Book a little bit later, we gather that information, and we want you to hear and understand what our researchers said. We gave them the qualitative of what’s happening. And it sounds like a lot of time – eight times every FOMC cycle. But between those cycles we are out there gathering hundreds and hundreds of voices of Main Street to understand what’s going on. So, we also speak to chambers, and we’ll go have speaking engagements, like this Dialogue with the Fed to share the information as well as meet and reach with our key contacts. It might be over email. If there’s something happening, say, with ag with the avian flu, and I want to reach out to a particular poultry industry, we’ll just go through email to get the voices of what’s really happening in our district.

And lastly, another way we look is just the soft data. So, things we can purchase, other surveys, what other companies are saying. And so again, it’s there’s so many avenues that we get this data, and it’s a lot of information and a lot of work. So, when you think, “Oh, it’s only every eight weeks,” that’s a lot to do within eight weeks and funnel all that information up, and to make sure that the presidents go, prepared to FOMC.

Geiger: Thanks, Matuschka. As Matuschka has emphasized, I hope one of the things you can see in the way that the Federal Reserve was designed is that information filters its way up to policy and decision makers so that they have the most accurate representation of what’s happening in the economy. And they can use that to then make what they feel is the best decision to reach the mandate, right maximum employment and stable prices. And then those policy decisions, then get implemented down through that same network and then eventually have that impact on our local economies. So, once they arrive at the meeting, they all go around, and there are reports that are given. They all share about what is happening in their economies. And then it comes time to actually make a vote.

So, after the FOMC votes on what they’re going to do for their policy decision so, it really comes down to three options: Is, are they going to try to leave the policy rate the same, are they going to increase it, or are they going to decrease it? Once they’ve made that vote, that decision gets communicated to the public through the FOMC statement.

A FOMC statement is actually pretty easy to understand, because it has really identifiable parts. So, it starts with recent economic developments, just kind of discussing what’s happened in the economy since the last meeting.

Then they reiterate whatever monetary policy goal they’re focusing on. There is what the decision was about the target rates. Then they’ll provide contents, context and explanation around that decision, and then they’ll talk about kind of the path forward, or sometimes called forward guidance what they’re going to be paying particular attention to as they look forward to the next meeting, and then at the very end it concludes with the voting record, you can see who voted and how they voted in this FOMC statement.

So, since we just recently had an FOMC meeting. We’re going to take a little bit of time, and Kathleen’s going to walk us through some of the what happened in the FOMC statement, and then also some of the other communication tools that the FOMC uses to communicate with the public right.

Kathleen Navin: Thanks, Amanda, so I can take that from you.

So just to kind of go over. This is the FOMC statement that was released following the June meeting just happened last week. So, June 17th and 18th those 19 participants got together. And then, after the meeting, this statement was issued. We have already done a little bit of coding for you. So you see, kind of the when everyone first gets the report, what they really zoom in on is what happened with the key policy rate with the federal funds rate. So, you see here in the middle, we’ve highlighted it in orange. The committee decided to maintain the target range for the federal funds rate at 4.25 to 4.5 percent, where it has been now since December of last year.

But if we kind of take a step back and look at this statement with that key in mind from our previous slide, what you see is to start out the statement usually begins with a review of economic conditions: what’s been going on in the data, the hard data what we’ve seen so far this year is we have had a lot of volatility in net exports, we see that addressed at the very beginning of the statement, but then, kind of zooming in on the underlying trends in the economy, we see references to economic activity being continuing to expand at a solid pace, unemployment rate remains low, labor market conditions solid, still, having inflation somewhat elevated, so that gives us the economic context for the meeting and for the decision.

When we look at that second paragraph, what we see is okay, what are the objectives of the FOMC. And here we see reference to the dual mandate. So, the committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run. Now, what’s really been interesting in the last few statements is the reference to uncertainty. You see here the next sentence notes uncertainty about the economic outlook has diminished but remains elevated. So, this was an improvement from the discussion around uncertainty in the previous statement. And for those of you beginning to follow the Fed, that’s kind of a common practice is to look at the statement that you will get issued, and look how it compares to the previous FOMC statement.

However, it’s still the case that there is high levels of uncertainty around the outlook. And so, this really gives context to the decision to maintain at this meeting, as we’ll learn a little bit later, when we talk about the press briefing Chair Powell noted that the current position gives the committee really, they’re in a good position to wait to get more clarity on the economy.

But sticking here with the statement, there’s still a lot of content in here. We see that the committee sees that risks are on both sides of the dual mandate, so they’re looking at risks on the inflation side of the mandate as well as the employment side of the mandate, and when, looking at that third paragraph, we not only see reference to interest rate policy, but also balance sheet policy. It notes that the committee will continue reducing its holdings of Treasury securities and agency debt as well as agency mortgage-backed securities, or MBS as we often abbreviate. This is a continuation of that normalization in the balance sheet going from abundant reserves to ample reserves. That’s now the new regime, this ample reserves, monetary policy setting. But again, it always comes back to the dual mandate. So the committee, reemphasizing how strongly committed it is to getting maximum employment and returning inflation to the 2% objective.

You’ll note here, supporting maximum employment is the language which does suggest that the committee views that the economy is relatively consistent with maximum employment, but on that inflation side, still needing to see that come down to 2%. What we see next is kind of a description of what to expect in the path ahead. When we look at this, it tells us, okay, what will the committee be looking at when deciding future monetary policy. It describes a wide range of data around labor market conditions, around inflation pressures also around inflation expectations, and those have really become kind of back in the limelight recently, there’s a lot of focus on inflation expectations. Those need to stay anchored at 2% to help bring the overall inflation rate back to 2%, a lot of focus there recently, but also looking at financial and international development. So, a lot of data and we’ll talk about later, a lot of quantitative data, a lot of qualitative data. As Matuschka referenced to get a sense of, where is the economy? Where is the economy headed? And what does that mean for the appropriate path of policy?

Now the last paragraph, as Amanda noted, tells us, how did FOMC members vote? And we see it was a unanimous decision to vote for this stance of policy to maintain at that current range. As well as continue that balance sheet runoff. One thing I’ll note here, too, is when we talk about those that are actually voting on policy you’ll often hear us refer to those as FOMC members, but as Amanda referenced earlier, all 19 participate in the discussion. So those seven board members, as well as the 12 bank presidents.

And what we have also just received – so, the nice thing about the timing of this Dialogue with the Fed is that we just had a fresh set of economic projections. So, if I go to the next slide, you’ll see this is the table that’s released. And this represents all 12 FOMC participants. So, every participant sits down, puts together a forecast. And then we have this summary table, that kind of aggregates them in certain ways. This is released four times a year. It’s really interesting, too, about the communication method. So previously, we talked about the FOMC statement. It’s a little wild to think that before 1994 there actually wasn’t an announcement right after the FOMC meeting, telling us what the FOMC decided to do. That first occurred in 1994, and then, after a few of those, they decided officially in 1995 that any time they would make a change to policy there would be an announcement following the meeting. That was formalized even further in January of 2000 when the FOMC started to release an FOMC statement after every meeting.

So, when we think about, you know, we kind of sometimes take these FOMC statements for granted. But really that’s only been the practice officially for about 25 years to get them every meeting, even when there’s not a policy change further in this kind of enhancement with transparency, we now have the summary of economic projections.

These were introduced in 2007, but it wasn’t until 2011 that we started to get the table that you see here, or a variation of it, released with the FOMC statement. Then in 2020, we started to get the full set of summary of economic projections, and we’ll talk about some of the other little nuggets that we get from that throughout the next couple slides. But I just wanted to give a little history on really the recent last few years, and that increase in transparency that we have really giving us a sense of what are policymakers thinking around the decision. And we get a lot of that from the summary of economic projections.

What you see here, and I think what gets a lot of the attention is this first column, first two columns that tell us, what do policymakers forecast? We have real GDP, we have the unemployment rate, and we have two versions of inflation: PCE inflation, headline inflation, as well as core PCE inflation, which removes the volatile components of food and energy. Now the FOMC’s mandate is for price stability, part of the dual mandate, and as of 2012, it actually has been explicitly stated that that is for 2% PCE inflation. Prior to 2012, it was an implicit target, but they really took that extra step for transparency in 2012.

So, we see that when we look at these forecasts, what’s also helpful is to see, okay, how did the committee change them relative to March? Just starting with real GDP, we see that the committee now looks for real GDP to slow to 1.4% in 2025 1.6% in 2026, and then so kind of firming in 2026, and then firming further in 2027. Now this is kind of one of the things you have to keep in mind is that this is the median projection of all 19 participants. So, while oftentimes we’ll say the committee views, really, it’s not that they sit down and come up with this forecast together they each individually submit their forecast, and then the median is highlighted here. So, we want to keep that in mind.

What’s also very helpful about this table is the comparison to the previous projections as I mentioned. So we see the downward revision to GDP growth in 2025, as well as a slight downward revision in 2026. Consistent with that modest downward revision to growth is an increase in the projections for the unemployment rate. So, we see that for the median projection, by the end of this year, the unemployment rate is expected to be 4.5% where it remains in 2026, and then ticks down to 4.4% in 2027.

Just a little bit I did for the just to make sure this table was nice and big and easy to read on the screen, I did take out the footnotes that give us a little more detail around okay, how are these variables measured? So note here, real GDP growth is Q4 over Q4 growth. So how much did the economy grow over the four quarters of the year? The unemployment rate is the fourth quarter average, as of the end of the year. Both inflation metrics are also that Q4 over Q4 growth. And then in a little bit, I’ll talk about the appropriate path of policy and what policymakers pencil down for that and that’s going to be a year-end value. So just kind of keep that in mind, and that’s all in the tables when you download them you’ll see all those notes.

Now, looking at inflation in a little more detail, we see an upward revision to both PCE inflation and core PCE inflation throughout the forecast horizon. That forecast is that upward revision is larger. In 2025 we see a three tenths of a percentage point upward revision, and then two tenths upward revision in 2026, and then one tenth in 2027.

So, let’s kind of take a step back. So, what is this telling us? Well, this median projection is showing that inflation is expected to tick up this year to 3% on headline, 3.1% on core. And then that disinflationary process resumes going into next year. And we see that gradual return toward that 2% objective. Now, as I’ve mentioned, there’s a lot of focus here on the median. What’s nice about this table is we also get some detail around the full range of forecasts. So, if you move over to the far right of the table, you see the total range. It’s going to show you the lowest projection that was submitted, as well as the highest projection that was submitted. And we look at core PCE inflation for example, you see that while the median was revised up from 2.8 to 3.1, the range was actually unrevised, and that full range 2.5% as the lowest 3.5% as the highest. But it tells us that the median moved up so that distribution within that range moved up. That also highlights, you know, a full percentage point in diversity of views around inflation which, given where we are in, you know, kind of the middle of the year, this does say a lot about the overall uncertainty around the economic outlook.

And so that range can be helpful to see kind of where policymakers stand relative to one another. The middle set here, the central tendency is a tighter range around that median. Essentially, it takes out the top three and the bottom three from that full range. So, you just get a tighter range around that median.

Now, I left it for last but one of the more recent additions to the summary of economic projections is around these estimates on the appropriate path of monetary policy. These were introduced in 2012, so we think we had the SEP first introduced in 2007, five years later, this introduction of the appropriate path of policy. Now we can look at it here in table form. So what we see is the median estimate is for there to still be 50 basis points in reduction in the target range for the federal funds rate this year, so that midpoint of the range falling to 3.9, an additional 25 basis point rate cut in 2026, and then one more in 2027 which takes us through this three year forecast horizon. We see that still somewhat above the longer run estimate.

But these, we see, are only mildly revised from March, so the projections for this year still we see 3.9, and then we see one fewer rate cuts next year, and then one cut in 2027 like before, but a higher level due to that one less cut in 2026. Now there’s still a lot of uncertainty around these forecasts. And so, what’s really helpful to look at is another version which goes and actually shows us each dot that was submitted. So, I’ve already kind of gotten ahead of myself, and this is known as the Dots Plot. So when you hear financial press talk about the meeting, when the summary of economic projections come out, you will often see reference to the dots plot. And that’s what I’m showing here. So here we have not just the median, and not just the ranges, but every estimate that was submitted for the appropriate path of monetary policy: so what did each policymaker pencil in.

What is interesting here is in 2025 if you were to count for that middle dot, you would find that that median, as I mentioned before, is for two 25 basis point rate cuts or 50 basis point in rate cuts this year. But you also see, there’s a pretty big, there’s a pretty big group there at the top of the range, which is for no rate cuts this year. In fact, it would have just taken one dot from the bottom half to move up to this top half to shift that median from two cuts to one cut, and really having seven FOMC participants, thinking that the current view is that no cuts would be appropriate this year, that is an increase from what we saw in March, where there were four participants, and then up from December, where there was just one participant. So while the median hasn’t changed in that time, you see that distribution around it has. So just something the dots plot can be interesting in looking at, you know each member’s or each participant’s thinking.

Now, I’ve spent a lot of time talking about the statement as well as the summary of economic projections table as well as the dots plot, and these really get a lot of the attention when the FOMC concludes their meetings eight times a year. But for this audience I really think that you would find it interesting just to see how much additional content is released, and while we don’t have enough time to show everything, I did want to show some of the additional metrics that are included in that full summary of economic projections. So, these exhibits previously were only available when we would receive the FOMC minutes, three weeks following the meeting. As of 2020, as I mentioned, we now have all of the metrics available as soon as the meeting concludes and the FOMC statement is released.

Now on this section in the actual document, if you were to go and download it, which I highly recommend, you’d see that there are this section covers both levels of uncertainty as well as risks around the forecast. I wanted to zoom in and just talk about the risks around the forecast for this exhibit. What’s really interesting is that if you look at the GDP growth projections. So, you kind of combine this with our table from before. And then you look at what did policymakers say about the risks around those projections? Well, you see that the majority see that they find those risks weighted to the downside.

However, the amount that weighted to the downside has improved since the March projection. If we look at the unemployment rate, you see that the majority sees risks around the unemployment rate weighted to the upside. So remember, a higher unemployment rate is associated with softer growth or a softer economy, but at the same time that is fewer than what we saw in March. So an improvement relative to March.

When we look at both inflation metrics, you see that the majority of FOMC participants thought that the risks were weighted to the upside on their projection. But again, that is fewer than what we saw in March. So it’s really helpful when we talk about the amount of uncertainty in the forecast, in the economy still, this year, to get a sense of okay, well, how are policymakers viewing the risks around their individual forecasts? So that brings me to the FOMC press briefing. Now this was also introduced in 2011, and originally it was brought about so that the Chair could explain the summary of economic projections. But then, in 2019, it became a standard. So, after every FOMC press briefing, it was the case that the Chair, so Chair Powell during this time, would speak after every FOMC meeting. This really gives us a sense of what is the reasoning behind the policy decision. It also gives reporters a chance to ask questions which can be really interesting. So, lots of times when I go out and speak to individuals about the economy, the questions that I receive, I often will hear Chair Powell answer at the press briefing so definitely worth tuning into there. I took a couple of notes of some of the things I wanted to mention here.

At each FOMC press, briefing, the Chair starts with an opening remark, here he’s going to take that opportunity to explain the projections when they are available, so four times a year, as well as the view on economic conditions more broadly, the view on policy, why the decision was made, and at this press briefing there was a lot of focus around the decision to maintain the federal funds rate at its current range 4.25 to 4.5%, and essentially that the committee views it is in a well, you know, it’s well positioned to respond to changes in the economy. That is important when we talk about the amount of uncertainty that remains with the economic outlook. So, it really gives us some context there. We also heard a lot of questions from the financial press on the inflation forecasts, and you know, how do they reflect anticipated tariff inflation? Here we heard that there are a diversity of views on the inflation forecast, and that really helps also explain that distribution we saw on the federal funds rate appropriate path, so taking that into context. And you know, a lot of this just remains uncertain. So we’re going to need to continue waiting to see the incoming data, the evolving outlook and the balance of risks to the forecast.

Let me see what other notes I took here. One thing I will recommend is if you’re interested in the FOMC press briefing, but you missed when it was airing live, the Federal Reserve Board’s website has the recordings as well as the transcript, which includes reporter questions so that can be a really good source. One of the other things that was interesting was the discussion around the framework review. So, this is something that the FOMC did five years ago. It’s now in a five-year cycle so, it’s time to do it again, and they are looking at their statement on longer run policy objectives and that is something that the first track is really to determine how, if any changes will occur there, they expect to have that finished by the end of this summer, so be looking for communications around that. And then the second set of that process will be to look at communication tools, and that will include the summary of economic projections that we just learned about. So, make sure to stay tuned to see what, if any changes do occur to these really important communication tools that the Fed has.

And because we want to make sure you have all of these resources readily available. We have a link here. This is from, I believe the Board’s website has this and these are all live links. So if you were to go to the Board and look at this, I think we’ll have a link that’ll take you, you can look at the full archive of all of these things. So, anyone looking to do a research project in these areas, anyone to kind of look at how those FOMC statements have changed year to year. And then the really interesting thing is that the transcripts, as well as some of those policy kind of materials that are, you know, top high clearance at the time of the meetings become publicly available five years after. So, you can go through, look at the actual discussion that happened, look at those different scenarios that were presented in what we call the Teal Book – it was a combination of the Green Book and the Blue Book - together they make teal. So you have a lot of information there. Yeah. So with that, I will, I think, pass it back to Matuschka.

Lindo Briggs: Thank you so much, both for sharing those great insights. It’s very helpful, you know, information for us. Now let’s open it up to the audience for questions. As a reminder to ask a question, please use the Q&A feature found at the bottom of the Zoom window. Enter your question into the Q&A box then click send.

So we’re going to start while we’re waiting for you all to do that, we’re going to go ahead and start with some of the questions we received in advance. Our first one is, how does the FOMC maintain its independence from political pressures, especially when making decisions that can have significant economic and political implications. Amanda, I think you touched on this a little bit.

Geiger: Yeah. So again, if you go back and you look at the history of central banks in the United States, and the history of how the Federal Reserve was created. You see a really thoughtful and intentional process for how the Federal Reserve was organized, and a lot of it was because of how important it is to have an independent, nonpolitical central bank that really focuses on those national economic goals.

So in terms of like, how do they put together. So the FOMC, because it is both the bank presidents and the governors, they’re actually selected using different ways. The governors, as we’ve mentioned, are nominated by their President, and then confirmed by the Senate, so that has a number of people involved in that selection process, and then they serve for their term without having to try to kind of advocate for reelection or other kind of political pressures you might see in other institutes. The district bank presidents are actually selected through a process that includes their regional areas. So how each district bank president is selected is again representative of that kind of regional interest, and that balance between national and regional interest that you see, and how the Federal Reserve was created. So the district bank presidents are chosen by their member bodies and then they are with advice from the Board of Governors as well. But they’re actually representative, chosen by representatives of those communities, and then you see them working really diligently within those communities to make sure that they are experts at what is happening in the local economy, and then they bring that to the table. And then the voting structure again, is another way that’s meant to ensure that there’s a diversity of viewpoints in the policy making process. And so I can be a little bit complex when you look at the voting structure on paper, you’re like, Wow, that feels like a lot. But it actually does a really good job of ensuring that not just that everybody gets to participate, but that you have a variety represented in the actual vote that makes the monetary policy decisions.

Navin: And one thing I might add on that, too, is when you look at the economic literature on this topic, why is it important to have an independent central bank, it is associated with better economic outcomes. So when we think about achieving that dual mandate, you know, it’s really helping to ensure that’s possible.

Lindo Briggs: I’m kind of staying on the same Fed independence line here. Transparency is important, which is something that we’re always talking about, we want to make sure we demystify the Fed. So the next question is, how does the Fed communicate important policy information to the public?

Navin: So I can take that one. So really, when we kind of look at all of the slides that I went over today, that’s really, how. So you have the FOMC statement which immediately explains what happened. So like I mentioned, if you think back prior to 1994, the markets, Fed watchers, they just had to kind of figure it out by watching what was actually happening with interest rates with markets. Now you know, that communication has just been made clearer and clearer as the statement progresses throughout the years. We look at the summary of economic projections. It’s giving context around that we look at the dots plot, it’s showing each participant’s view. There’s also a lot of FOMC participant communication that goes on throughout. So we have, you know, the meetings where we get the statement. But then anyone tuned in to following the bank presidents as well as the Board of Governors, you’re going to get insights into what they’re thinking as well. So when we talk about this need for watching the incoming data, for thinking about the evolving outlook and the balance of risks.

We don’t have to wait until the next meeting to know what policymakers are thinking. We can kind of see as their views progress throughout that intermeeting period, and then with the Framework Review, we also have, you know, they take time to ensure that their current communications you know, are doing the job that they intend to, and they’re looking for any improvements to further make it more transparent. So the public can really understand, not just what is happening, but the why behind it as well. So it’s definitely very interesting to watch.

Lindo Briggs: Okay, thank you. So, this one just came in. So, and I think this is referring to a map you may have had Amanda and I can answer it or help you answer it. It says, when I was looking at the map of the reserve banks behind each number is a letter. What is the significance of the letter?

Geiger: Yeah. So it’s a, it’s a, it’s an alphanumeric combination that just basically represents each district. So the letter corresponds to the letter of the alphabet. So 1A first district A, is the first letter of the alphabet. We’re in St. Louis, which is the 8th district, and H is the 8th letter of the alphabet, I will say probably one of the most interesting, and I see Matuschka reaching for it.

Lindo Briggs: I’m hoping I have a dollar.

Geiger: One of the key functions that the Federal Reserve banks do is currency circulation. And so each, as you can see on the screen each currency bill that is circulated tells you where it was originally circulated. So that says 12L. Which means that it was originally circulated by the San Francisco Fed. And so yeah, it’s a tracking number. And it’s also kind of a fun dinner party trick. You can pull it out. And I’m a good time. You can tell.

Lindo Briggs: Because I was thinking to myself I was taking the dollar out, I’m like, Oh, my gosh! What if I take it out? And I can’t remember what the number corresponds to. I’m in New York, B2, like I can get like from Boston, work my way to San Francisco, which is 12. It’s those three to six kinda like I get a little.

Geiger: Yeah, in the middle.

Lindo Briggs: Pulling it out I was like doing, I’m not gonna know what that number is, but good for you.

Geiger: Yeah. So the so it’s the number of the districts, and then the letter combinations. And we use it for identification purposes largely.

Lindo Briggs: Right. Okay, so the next question I have, it’s like two or three parts, I’m just gonna kind of read through it and both of you can answer, or whomever: how much communication sharing goes on before the FOMC meeting between the members? Similarly, how much sharing, communication do the FRB banks, senior policy advisors, staff have with other Federal Reserve banks, or the Board of Governors? Do the FOMC members already know, or have insight about what is going to happen even before the meeting?

Geiger: Yeah, so I can start us off on that one. So, I hope one of the takeaways from this, and you’ve seen in both my remarks and Kathleen’s, and what Matuschka shared is that the Federal Reserve is constantly listening and trying to gather information and data and research and really understand what economic conditions are. And so even the FOMC statement itself kind of answers that question. It talks about at the beginning, what happened since the last meeting? So, and then towards the end, it talks about what they’re most watching going into the next meeting. So, each time an FOMC meeting is held, the presidents and the governors immediately start to prepare for the next.

And so the Federal Reserve banks themselves are really important hubs for information, because they are spread out geographically over the U.S. and they are an integral part of the communities. And that information works its way back up. And we’re constantly researching and surveying and trying to understand. Matuschka had that really fantastic slide about just a sampling of all of the ways that they try to gather that information. And so the other component I’ll put with that is that map we talked about. So the districts there are often more than one Federal Reserve bank responsible for a state.

So it doesn’t follow clean state lines in how the districts are divided up. So the Eighth District, for example, has seven different states in it, and Arkansas is the only one where the state of Arkansas is completely within the Eighth District boundaries, which means for the six other states the Eighth District shares oversight jurisdiction with another Federal Reserve bank, right? Whether that’s Cleveland or Atlanta, or you know, whomever it might be for the state. And so, because we’re studying similar states and similar regions, there is a lot of information sharing, and then through the functions of the Federal Reserve and the way they implement that monetary policy, we are one in mission and one in purpose, and so we work together often to be as effective and efficient as we can in that.

So I wouldn’t ever deem to speak for the presidents in terms of like how they communicate. But we are kind of constantly as a system in communication with each other, and constantly sharing that information, not just internally, but, as Kathleen has said, we’re trying to get that information out to the public as much as possible. A large part of Matuschka’s work is sharing this information in her local community in the Little Rock branch zone.

And so you know, to answer that question. They’re kind of constantly in communication with each other, and kind of consistently preparing for whichever FOMC meeting is upcoming, and as much as they’re able, they try to communicate what they are looking for in things like the FOMC statements and the economic projections and the press conference.

Lindo Briggs: And since we’re talking about information, this next question that just came in is so good because it’s what do we do with all that information: we do a lot with it, besides, just the President’s taking it to FOMC. So the question is, what is the Beige Book? How does it relate to the Fed?

Geiger: That’s such a good question.

Lindo Briggs: And I love this question because I get this question a lot, because people want to know where all that information goes. So we when you look at the Beige Book, it’s really a summary of all that information we have collected. So I say, that usually comes out the Wednesday before Chair Powell speaks and gives his press or two Wednesdays before. So, two weeks before that comes out, and I love that, because if you look at that, that’s such an insight of information of what they’re talking about at FOMC. It breaks down all these summaries, whether it’s manufacturing, you know, real estate, what’s happening and when you talk about all of us speaking so we like, I said, we may have an industry council, that’s ag, that’s transportation and health care, but what we may not have that Dallas has, and the Kansas City Fed has is energy. So when you look at their Beige Book, they may have energy in there so, and one of you might want to explain it more, but each bank has their own Beige Book that they put out, and all of them are compiled on the Board of Governors website. So, if you are part of a large company, and you’re global or national, and you want to see what’s happening across all states, that is a great place to kind of see what the pulse, what’s happening, what they’re discussing and what information bubbled out when we were boots on the ground everywhere and talking so it really summarizes all the districts.

And again, I also love to share, if you have the opportunity to sit at a roundtable, those of you listening, if you have an opportunity to share your voice, it’s so important to us. And again, we don’t, you know, name our sources, we don’t use any proprietary information where we’re sharing that. And you’ll notice that when you’re looking through the Beige Book. So I think that’s very important to say that we respect all the information that comes to us, that’s really for us to aggregate and work with our qualitative data. And, you know, make sure we have all the information correct anything else you all want to add to that.

Navin: One thing I may mention, too, is the beauty of the qualitative data is the timeliness. So we know that the so lately you’ll hear this expression about soft data and hard data. So, the hard data really are the gold standard in understanding where the economy is at the moment. So, we’re going to be looking at those government statistics which are crucially important for understanding the economy. So, GDP, inflation, unemployment levels, the payroll gains those kind of ones that when we talked about the SEP, those are really critical.

But we’re also looking at the soft data: what are surveys saying? What is the Beige Book saying, and while the hard data really tell you where the economy is, the soft can tell you, perhaps, where the economy is going and those turning points can be, you know, something that you gather from the “anec-data” if you will. So, I learned that from a Beige Book counterpart at another Federal Reserve Bank. Thank you to him for that amazing word. But so that’s something that’s really helpful. But also, too, you know, we do want to highlight the importance of that hard data. You know, when we’re looking at what the government agencies are putting out everything from BEA, BLS, Census that’s all going into this information gathering as well and crucially important.

Geiger: Yeah. So if I might just ask our studio team if you could drop that link to the Board’s website where you can see you can get that link to the Beige Book again. So, we dropped it earlier in the chat, and we’ll drop it one more time. But again, I can’t emphasize enough the accessibility of the Beige Book. It is a very condensed, usually a paragraph or so per section, so it’s very accessible way for you to get in an understandable way what it is these numbers are looking like or feeling like on the ground. So, as Kathleen mentioned, they can be a really good indicator of where the economy might be going, or at least where people feel it’s going, so when you couple it with that harder data, you can start to get a really robust picture of what it’s actually happening on the ground. Yeah.

Lindo Briggs: And I would also say that you can go to most all Fed websites and just click and register, and then it’ll automatically pop into your inbox, too if you register for that.

Geiger: Also shameless plug a little bit: Matuschka does a podcast out of the, so if you go to stlouisfed.org, Matuschka does a Beige Book podcast each time the Beige Book comes out and she works with our economists and our team that compiles that Beige Book and just really kind of delves into it a little bit. And it’s a wonderful podcast so I highly recommend it.

Lindo Briggs: Oh, thank you. All right. So how do FOMC members make their decisions? What quantitative and qualitative data do they use? We kind of just went over that pretty much what they’re doing, so I don’t think there, you might have a little to add to that, but I want to combine it with this other question, Kathleen, that I think you could touch on is, what indicators does the FOMC consider most important when deciding whether to raise or lower interest rates?

Navin: So I think, in my opinion, here it comes back to the dual mandate. So we talked about, you know all of the information that policymakers are bringing in. But at the end of the day, you know, it’s really how where are we on the dual mandate? How far are we from maximum employment? And how far are we from the inflation mandate of 2% PCE inflation? So, I think you know, getting a sense of is the economy slowing. Okay, that could tell us something about where the unemployment rate is going. So those are things where eventually they kind of always lead to the picture around the dual mandate. So, looking at those labor market conditions, looking at the inflation metrics, I think those are probably in my view, since those are the dual mandate metrics, the most important, but really everything else that leads to that is something that is definitely going into those discussions, that thought process. Thinking about those scenarios around what could you know, bring us in a situation where you’re moving away from the maximum employment or the target inflation, you know, thinking through all of that, what data tells you about it, and the goal being to be in that dual mandate balance with maximum employment and inflation. So I think it kind of – you look at everything, but it always comes back to those two parts of the economy.

Lindo Briggs: So the FOMC, the fundamentals, people, the questions are really diving very nucleus here. So which decisions are made by vote of the members versus the Chair. What issues does the Chair decide on alone? If any.

Geiger: Well the FOMC itself, it is a committee. And so, and it is the monetary policy making body. So those decisions are made by Committee. Specifically, the FOMC decides how they’re going to conduct open market operations, setting the federal funds target rate, the size and composition of the Fed’s asset holdings and balance sheet, and then that communication piece with the public. So, as Kathleen kind of mentioned in the history of some of these reports, the Chair can have an influence like in terms of like frequency, like having the FOMC statement come out each meeting was probably both part of the Chair, like the Chair’s decision to hold the Press Conference component more frequently, and the committee’s discussions together. But the monetary policy decisions themselves are made by committee and the Chair Powell is just one vote of the 12 votes.

Lindo Briggs: Okay, so let’s do a Fed policy question here, this came in a little earlier. Can you explain what’s on the Federal Reserve’s balance sheet, and why it matters for the broader economy.

Navin: So I can take this one. I can take it because I love looking at the Fed’s balance sheet. So they every week the Fed, publishes line by line, what is on the balance sheet. It’s called the H4 release. So if you go and you google H4, just go to the Fed’s website, the Board’s website, and it’s released every Thursday afternoon, and you will see, line by line what’s on the asset side of the Fed’s balance sheet what is on the liability side. So when we’re thinking about, you know, implementing monetary policy like we described before, you’re going to see those tools that are actually used on the Fed’s balance sheet. When we think about financial stability, so if you think back to March of 2023, when there was stress in the banking sector, there was a new program introduced at the time called the bank term. Oh, my gosh! I should know this BTFP, so Bank Term Funding Program, and that was introduced as a way to as a liquidity relief measure in the banking system. And you could see that line item on the Federal Reserve’s balance sheet. When banks borrow from the discount window at the Federal Reserve, you can see that on the Fed’s balance sheet. Also, on when we think about the securities that are being purchased, or as we’re seeing the balance sheet reduce in size as those are running off, when we think about Treasury securities, holdings of mortgage-backed securities, all of that is there on the balance sheet to look at. When you look at the liability side, you’re going to see currency, you’re going to see reserves, you’re going to see reverse repos. It’s all there. Not to get too nerdy here, but it is great just to be able to have that as a tool to reference, what actually is happening again, this effort of transparency. And you know, why is it important? Well, it explains how the fed implements monetary policy. It also shows how the Fed is there as lender of last resort for the banking system and the financial system and that financial stability goal as well. So definitely recommend take some time tomorrow afternoon when the H4 comes out and just look it over. It’s got a lot of detail.

Geiger: Yeah, if I could just quickly add to that as well, I think part of the reason it matters is it goes into the accountability function of the Fed. The Federal Reserve is independent, but it’s still very accountable to Congress and to the public right? It is the U.S. central bank and so a lot of these transparency measures and the audits and things that happen and making the information about the balance sheet available really goes into showing that accountability, and that the Federal Reserve is being a good steward of the task, that it’s been mandated by Congress.

Navin: Yeah.

Lindo Briggs: Okay, I’m going to squeeze in one more question. This is probably our last question. Please share the Fed’s new tools of monetary policy with us. Are we still using the money multiplier?

Geiger: Okay, I can touch on that very briefly, and I’ll start by saying that could be a whole session in and of itself. But I do, if you’re really interested in the new tools of monetary policy, federalreserveeducation.org or fre.org has a host of resources available. There are articles specifically about the transition from a limited to a more ample and abundant reserves model. There is a lot of explanation about like interest on reverse, or excuse me, interest on reserves, and how that affects incentives for banks, the lender of last resort function so federalreserveeducation.org because I’m going to give just a very broad answer that the tools focus on the administered rates, the interest on reserve balances and the discount rate. And so those tools together kind of create a ceiling and a floor for the federal funds rate, which is a market-based rate.

And so when the FOMC makes a policy decision about what range they would like to try to see that federal funds rate in, they use the interest on reserve balances and the discount window to try to try to guide the federal funds rate towards that target. And so that’s what you then see, that federal funds rate affects the other market interest rates which then affects consumer spending and business investment, and then ultimately you get to employment and inflation, those two measures that Kathleen has really done a great job emphasizing are the main focus for the dual mandate, and so the new tools in them themselves, like the money multiplier, was based on the limited reserves model or required reserves, and the Federal Reserve really hasn’t required reserves for banks since about 2008, 2009, and so instead, they pay interest on that reserve account. So not in a dissimilar way, that you get paid interest on a savings account at your bank, your bank has an account with their Federal Reserve, and they’re paid interest for the money that’s in there, and so that creates incentives that can steer the availability and cost of money and credit in the United States, and I’m going to have to pause that there for time. But I’ll just keep reemphasizing it: if you go to federalreserveeducation.org, we have a number of videos that explain specifically what those terms mean and how they influence the economy. And I highly recommend them.

Navin: Yeah. And I just want to second the recommendation. So when we think about the Fed’s balance sheet, Amanda discussed that transition from limited reserves prior to the financial crisis, and then you had these rounds of quantitative easing where you saw the Fed’s balance sheet get larger, there’s been four of those to date. So one so three during the financial crisis and post, and then one during Covid. So you see that larger size of the Fed’s balance sheet. And so when I was in school, not to give anything away about my age, but monetary policy worked differently because you were under a limited reserves, balance sheet, so kind of what was in my traditional textbook, if I were to go pick that up it would be out of date. So I have used the Federal Reserve Bank of St. Louis’s resources and tools, research by Scott Wolla, to really understand this new reserve regime, and they are great resources so highly recommend them.

Lindo Briggs: Okay, well, with that, our time, I’m going to have to go ahead and wrap it up. I want to thank everyone for joining us today, and for the great questions that we got in a special thank you to my colleagues, Amanda and Kathleen, for sharing their expertise and helping us unpack what happens inside the FOMC. We hope this conversation gave you a better understanding of how policy decisions are made, how important the voice of Main Street is, and why those voices which, let me remind me, remind you, they’re your voices. They’re so important, and they matter.

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