WSJ questions for the Final Exam in Fall 2019 Professor Yongil Jeon Monetary Policy (1) December 14, 2019 Paul Volcker Was Inflation's Worst Enemy; As Fed chairman, he shored up the dollar and set the stage for decades of economic growth. • Volcker was at the August 1971 Camp David meeting where President Nixon decided to impose wage and price controls and abandon the international monetary system by closing the gold window. • The job Mr. Carter gave Volcker in the late 1970s was even more important and more difficult. The wage and price controls imposed in 1971 had led to an inflationary monetary policy at the central bank under Chairman Arthur Burns. • He weighed in on the causes of the global financial crisis, arguing for higher capital requirements and for what would be called the "Volcker rule" to curtail proprietary trading. • (2) December 10, 2019 Bank of Canada Leaves Key Interest Rate Unchanged at 1.75%; Central bank cites early evidence the global economy is stabilizing • The Bank of Canada left its key interest rate unchanged at 1.75% on Wednesday and gave no indication a near-term cut is in the offing, as it cited early evidence that the global economy is stabilizing. • She said the central bank is reluctant to ease because doing so would add to Canada's existing consumer debt and housing-market troubles. • The Federal Reserve, European Central Bank and the Reserve Bank of Australia have all cut rates in recent months to mitigate the damage from slowing economic growth. (3) December 5, 2019 Fed Chairman Powell, Trump Meet, Discuss Economy; Mr. Powell received an invitation from White House • Fed officials have cut their short-term rate three times since July, most recently in October to a range between 1.5% and 1.75%. Officials lowered rates to cushion the U.S. economy against the risks of a sharp slowdown due to a slide in business investment and decelerating global growth. • Mr. Trump's attacks on the Fed ended a bipartisan precedent extending to the Clinton administration in which presidents didn't publicly direct the central bank on how to set policy. • In the 1960s and 1970s, inflation accelerated after presidents pressured the central bank to stimulate growth. (4) December 3, 2019. New York Fed Adds $88.45 Billion to Markets; Latest in series of moves aimed at ensuring short-term borrowing rates remain wellbehaved • Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by the securities. • The Fed's interventions are aimed at ensuring that the financial system has enough liquidity and that short-term borrowing rates remain well-behaved, with the central bank's federal-funds rate staying within the 1.5%-to-1.75% target range. • The Fed is using temporary operations to tamp down on any possible volatility, while purchasing Treasury bills to build up reserves in the banking system.
