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Inside the Fed

Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke

Stephen H. Axilrod
Copyright Date: 2011
Edition: REV - Revised
Published by: MIT Press
Pages: 240
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  • Book Info
    Inside the Fed
    Book Description:

    Stephen Axilrod is the ultimate Federal Reserve insider. He worked at the Fed's Board of Governors for more than thirty years and after that in private markets and as a consultant on monetary policy. With Inside the Fed, he offers his unique perspective on the inner workings of the Federal Reserve System during the last fifty years. This new, post-financial meltdown edition offers his assessment of the Fed's action (and inaction) during the crisis and expanded coverage of the Fed in the Bernanke era.Great leadership in monetary policy, Axilrod says, is determined not by pure economic sophistication but by the ability to push through political and social barriers to achieve a paradigm shift in policy -- and by the courage and bureaucratic moxie to pull it off.

    eISBN: 978-0-262-29589-5
    Subjects: Economics, Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-viii)
  4. Introduction
    (pp. 1-6)

    My professional life as an economist was of surprising interest, something I never expected and did not quite realize was happening. It turned into a career that brought me—in the process of policy support, implementation, and advice—into contact with the top central bankers of this country, complemented as time went on by experiences with key players in the international central-banking community and in private financial markets.

    As a young man, I thought, for a complex variety of reasons, that the best career in the world would be to teach at a lovely, small, private college. Indeed, in the...

  5. 1 Overview of Policy Management and Managers
    (pp. 7-24)

    If you believe the national media, the head of our nation’s central bank—the chairman of the Board of Governors of the Federal Reserve System—is thought to be the second most important person in the country. This position carried no such status in the early 1950s when I first reported for work through the C Street entrance of the Fed’s headquarters building in Washington, D.C., a white marble, rectangular, faintly classical structure that fronted Constitution Avenue and, across the road, the extensive green mall with its affecting monuments to the nation’s history.

    At that time, monetary policy was very...

  6. 2 In Bill Martin’s Time
    (pp. 25-54)

    When I arrived at the Fed in the early summer of 1952, William Mc-Chesney Martin had been chairman for a little more than a year. Over the course of his long tenure, I rose from the lowest professional rank to officer level, with my responsibilities shifting more and more into areas closely connected to monetary policy. Thus, although not as close to him in a professional way as I was to his three immediate successors, I did after several years come to have a firsthand view of him in action at Board of Governors and FOMC policy meetings.

    The name...

  7. 3 Arthur Burns and the Struggle against Inflation
    (pp. 55-76)

    Arthur Burns was very unfortunate in the particular decade, the 1970s, where fate placed him as chairman of the Fed. He served in years of quite strong inflationary winds, not only prevalent in the United States but also in other major developed countries.

    In the United States, it was also a period of rather persistent downward pressure on the dollar in foreign-exchange markets, which intensified domestic inflationary pressures and signaled a developing loss of confidence in the dollar as a currency. There was the devaluation crisis of 1971–1973 when the United States in effect went off gold and stopped...

  8. 4 The Miller Interlude
    (pp. 77-88)

    During Bill Miller’s year and a half in office, the Fed’s credibility in markets was further eroded as inflation intensified, impelled in part by the second oil-price shock. The belief that the Fed’s commitment to monetary targeting was essentially a sham became more pervasive. Doubts about the Fed’s anti-inflation credibility were adversely affecting both the domestic and the international value of the dollar. At home and around the world, the belief grew that U.S. dollars were a depreciating asset. Something rather dramatic and ultimately convincing had to be done.

    This something was not accomplished under Miller and, given his temperament...

  9. 5 Paul Volcker and the Victory over Inflation
    (pp. 89-118)

    During Paul Volcker’s eight-year tenure as chairman of the Fed, beginning in August 1979 and lasting until August 1987, policy changed dramatically. He was responsible for a major transformation—akin to a paradigm shift—that was intended to greatly reduce inflation, keep it under control, and thereby restore the Fed’s badly damaged credibility. This transformation involved a new approach to open market operations that was designed to assure closer control over the money supply by focusing day-to-day operating decisions much less on interest rates and much more on an aggregate level of reserves, an approach that was in its full...

  10. 6 The Greenspan Years, from Stability to Crisis
    (pp. 119-148)

    I had been out of the Fed about a year before Alan Greenspan took over as chairman in August 1987, so my view of him, and of course his successor, Ben Bernanke, is only from the outside—nonetheless a view that can hardly avoid being heavily influenced, for good or ill, by the long years spent inside, sometimes like a caged mouse running on a policy treadmill and sometimes like a fly on important walls.

    From one perspective, the value of inside-out knowledge of the Fed should tend to become gradually less relevant and potentially, one might think, even misleading...

  11. 7 Bernanke and the Response to the Great Credit Crisis
    (pp. 149-170)

    The arrival of Ben Bernanke as chairman of the Board of Governors of the Federal Reserve System at the beginning of February 2006 marked a generational shift in leadership away from the cohort that had grown up during the Great Depression of the 1930s and the Second World War—a shift that also seemed to be typical, as one should naturally expect, of appointees in general throughout the Obama administration once it took office.

    The economists now coming into leadership positions were trained differently from earlier generations, with more stress being placed on the application of increasingly sophisticated mathematical and...

  12. 8 The Fed and Its Image
    (pp. 171-188)

    There must be almost as many images of the Fed as an institution and of the wellsprings of its actions as there are viewers. Mine, born of a particular experience, generally has been a benign one. By and large, I have seen the institution as unbiased, straightforward, and diligent in carrying out its congressionally given mandates. Obviously, not everyone sees the Fed that way. And my own image of the Fed has become less benign in the wake of the great credit crisis.

    Traditionally, when the Fed has worried about its credibility and image (as it more or less continuously...

  13. 9 Concluding Remarks
    (pp. 189-206)

    I have tried to depict how the Fed managed monetary policy over the past almost six decades and, in particular, how the various chairmen of this period attempted to exert their own influence on policy, sometimes effectively and sometimes not. Such a perspective can have the unfortunate side effect of seeming to diminish unduly the role of other FOMC voting members, not to mention also the reserve bank presidents who participated in meetings in years when it was not their turn to vote. But it is not meant to. They, too, have been critical to the policy process. Governors on...

  14. Appendix A: Chronology of Federal Reserve System Chairmen and U.S. Presidents
    (pp. 207-208)
  15. Appendix B: Key Economic Objectives and Monetary Policy Indicators
    (pp. 209-210)
  16. Notes
    (pp. 211-218)
  17. Index
    (pp. 219-225)