Session 1 · The Federal Reserve FIN310

Intro, history, role, structure, leadership, and our 2011 JU visit (QE2 context).
Theme:

1) Intro

Dual Mandate

The Federal Reserve is America’s central bank (created 1913). Its job is to keep money and the financial system steady.

The law gives the Fed two big goals (the dual mandate): stable prices and maximum employment.
Intro Reference
Advanced Statement on Longer-Run Goals (2025)

2) History (super short)

1907 → Dodd–Frank
  • 1907 panic → Congress designs a central bank.
  • 1913 → Federal Reserve Act signed.
  • 1930s → Reforms after the Great Depression.
  • 1977 → Dual mandate written into law.
  • 2010 → Dodd–Frank adjusts tools & oversight.
Intro Reference
Advanced Reference

📖 History of the Federal Reserve

3) What the Fed Does

Policy • Supervision • Payments
Monetary policy: sets the stance of interest rates to cool or support the economy (details in Session 2).
Supervision & regulation: checks the safety of banks and the system.
Payments & cash: runs parts of the national payments system and currency services.
Lender of last resort: provides liquidity in emergencies.
Intro Reference
Advanced Reference

4) How It’s Organized

Board • Banks • FOMC
Board of Governors (D.C.)
  • 7 members; nominated by the President; confirmed by the Senate.
  • Serve 14-year staggered terms to reduce politics.
  • The Chair & Vice Chair are chosen from the Board for 4-year leadership terms.
Intro Reference
Advanced Reference
12 Regional Federal Reserve Banks
  • Bring local data & run operations; each led by a president.
  • Presidents are selected by regional directors and approved in D.C.
  • New York Fed runs market operations for the system.
Intro Reference
Advanced Reference
FOMC (policy committee)
  • 12 voters: 7 Governors + 5 presidents (NY always; 4 rotate).
  • All 12 presidents discuss even when not voting.
Intro Reference
Advanced Reference

5) Leadership snapshot (2010)

Bernanke era
Fed Chair in 2010: Ben S. Bernanke (served 2006–2014).
This corrects the common mix-up with Jerome Powell (Chair from 2018–present).
Intro Reference
Advanced Reference
Recent Chairs (quick list)
  • Alan Greenspan — 1987–2006
  • Ben Bernanke — 2006–2014
  • Janet Yellen — 2014–2018
  • Jerome Powell — 2018–present

6) JU Visit (2010)

QE2 context
Local connection: In 2010, representatives from the Federal Reserve visited our FIN310 class at Jacksonville University to talk careers, monetary policy, and the then-new balance-sheet tools that began during the Great Recession.
Intro Jax Daily Record
Advanced Fed QE Tools
Video C-SPAN: Bernanke at JU
What is QE (as of Nov 2010)?
  • Definition: Fed buys longer-term Treasuries (and earlier, MBS) to lower long-term rates when the policy rate is near zero.
  • QE2 announcement: In Nov 2010, about $600B in Treasury purchases through mid-2011.
  • Goal: Ease financial conditions, support hiring, and lift inflation toward ~2% after the 2008–09 crisis.
Intro Reference
Advanced Reference

7) Videos

Primers

Course-related videos. Click Open on YouTube for full screen.

The Federal Reserve System | The Fed Explained
Open on YouTube

8) Chair the Fed – Simulation Games

Hands-on policy

Try setting policy and managing inflation/unemployment. If an embed is blocked by the site, use the Open Game button.

Game 1: Macroeconomy Simulator

Adjust rates and watch the economy respond with realistic lags.

Open Game

Game 2: Chair the Fed

Set the policy rate to hit inflation and employment goals amid shocks.

Open Game

Note: Some sites block embedding via security headers. If the frame is blank, click Open Game.

8a) Chair the Fed – Simulation Game 2 Instruction

How to play

In this interactive game from the Federal Reserve Bank of San Francisco, you are the Fed Chair. Your task is to use the federal funds rate to balance the economy over a four-year term (16 quarters).

🎮 Play Chair the Fed

Game Goals

  • Keep inflation ≈ 2%
  • Keep unemployment ≈ 5%
  • Respond to economic shocks while serving a full four-year term

How to Play

  1. Click “Raise,” “Hold,” or “Lower” each quarter to set the federal funds rate.
  2. Watch how inflation and unemployment react over time.
  3. Record values in a simple table: Quarters Remaining | Inflation | Unemployment | Fed Funds Rate.
  4. Adjust policy as new headlines and shocks appear.
  5. At the end, see if you are reappointed as Fed Chair.

Classroom Instructions

  • Step 1 – Introduction: Review the Fed’s dual mandate and the role of the funds rate.
  • Step 2 – Demonstration: Instructor plays live for a few quarters.
  • Step 3 – Student Play: Students play individually or in groups, tracking their outcomes.
  • Step 4 – Reflection: Compare strategies, identify which shocks appeared, and analyze successes/failures.

8b) Fed vs President — Independence/Conflict Game

Policy tug-of-war

A quick, one-round-per-era boxing demo of President vs. Federal Reserve: tax cuts, rate hikes, pandemic stimulus, and more—showing where goals align or clash.

Play in page

Open Game in New Tab For class use only; not for other purposes.

8c) Velocity of Money (MV = PY)

V insight

Velocity of money is how often a unit of money is used to buy final goods and services in a period. Formally: V = Nominal GDP ÷ Money Supply. In the quantity equation MV = PY, M is money supply, V is velocity, P is the price level, and Y is real output.

Why it matters

  • High velocity → money changes hands quickly → strong spending and growth, but can push inflation up if supply can’t keep pace.
  • Low velocity → money sits idle → weak demand, slower growth, lower inflation or even deflation risk.

In the Fed simulation: if demand looks weak, lowering rates can raise spending and velocity. If the economy runs hot, higher rates can cool spending and velocity.

Mini Calculator

Enter nominal GDP and a money measure (e.g., M2). Units just need to match (billions with billions, trillions with trillions).

Quick Check (for students)

  1. If nominal GDP is $28T and M2 is $21T, what is V? What does that imply?
  2. In a slump, why might V fall even if the Fed keeps M stable?
  3. How could a rate cut influence V in the short run vs. with lags?

Tip: Have groups compute V for different years (e.g., pre-pandemic, 2020, recent) and present a 2-sentence interpretation linking V to spending strength and inflation risk.

8d) FOMC: Sep 16–17 — Checklist & Prediction

Practice + Forecast

Review key indicators, then make your meeting prediction. Save now — we’ll grade it after the statement/press conference.

Inflation “ideal” : The Fed aims for PCE inflation around 2% over time, with core PCE steadily trending toward that goal. Signs of “good” progress include cooling momentum (e.g., slower 3-month trend), easing core services inflation, and stable inflation expectations.

Pre-Meeting Checklist

Check what you reviewed. Click “Why it matters” to see what to look for.

Checked: 0/10
  • Why it matters
    • Signals breadth of price pressures; compare headline vs. core.
    • Look for cooling momentum toward the 2% goal.
    • Energy/food swings can disguise underlying trend.
  • Why it matters
    • Policy is calibrated to bring core PCE toward ~2% over time.
    • Watch core services (ex-housing).
  • Why it matters
    • Cooling labor demand supports disinflation.
    • Overheating can sustain above-target inflation.
  • Why it matters
    • Demand vs. supply balance matters for inflation persistence.
  • Why it matters
    • Forward-looking gauges of demand, hiring, prices.
  • Why it matters
    • Consumer demand is the bulk of GDP.
  • Why it matters
    • Tighter credit slows demand.
  • Why it matters
    • Higher long yields/wider spreads cool activity.
  • Why it matters
    • Shows what’s already priced; surprises move markets.
  • Why it matters
    • QT pace shapes liquidity & money markets.

In-Class Exercise: Make Your Prediction

Rate Decision
Statement Tone
Inflation Outlook (core PCE, end-year)
Labor Market (end-year)
Balance Sheet (QT)
Dissents

Saved locally on this device (no upload).

Featured

8d) Class Predictions — Student In-Class Exercise

🔥 Most discussed Focus: Rate move Tone: Dovish/Neutral/Hawkish QT: Continue / Slow / Pause

Class Predictions (rates • statement tone • QT)

Collected Aug 21, 2025. Below: original statements grouped by direction and renumbered within each group.

Group 1 — Lower interest rates 19 responses (≈76%)
  1. 0.5% down.
  2. I believe interest rates will go down slightly, maybe like 2%.
  3. I think the Fed will lower the rates.
  4. I believe that the interest rate should go down to improve the unemployment rate.
  5. I think they will lower interest rates due to political events such as the deportation, there will continue to be less money spent by the families and lower interest rate will encourage pulling money from the bank and more spending.
  6. 0.5% down.
  7. I think they will lower.
  8. I think interest rates will go down due to a higher inflation %. I think rates to fall around 4.75%.
  9. Lower interest rates 0.25%.
  10. 0.5%.
  11. The current rate is 4.33%. I think next month they will drop it by 0.25% so I guess inflation will drop to around 4%–4.08%.
  12. The Fed will lower interest rates.
  13. I predict the Fed will slightly lower the interest rate.
  14. Fed will lower interest rates a little bit. Maybe 0.25%.
  15. I think the Fed will lower interest rates. Around 0.25%.
  16. Down by 0.25%.
  17. I think interest rate will go down by 2%.
  18. I think interest rate has to go down because it is too high. Maybe to 3%.
  19. Fed will either keep rates the same or lower interest rates. Their focus is to raise the value of the USD. (ambiguous; counted with “lower” for tally)
Group 2 — Unchanged 2 responses (≈8%)
  1. I think they will not lower the rates. Risk of inflation and if they do not want it now they probably won’t do it. They will not lowering it back home.
  2. Fed will either keep rates the same or lower interest rates. Their focus is to raise the value of the USD. (straddles “unchanged”/“lower”)
Group 3 — Higher interest rates 4 responses (≈16%)
  1. I believe that the interest rate will only increase with the current administration.
  2. 0.25% up.
  3. The interest rate will go up.
  4. Interest rate will go up.

Class Summary (as of Aug 21, 2025)

  • Lower: 19 / 25 (≈76%) — mostly small cuts (0.25–0.50%), a few large-cut views (≈2% or to ~3–4.75%).
  • Unchanged: 2 / 25 (≈8%) — hold due to inflation risk; one answer hedged “hold or lower.”
  • Higher: 4 / 25 (≈16%) — hikes cited to policy stance/inflation concerns.

Takeaway: Clear class skew toward easing ahead of the Sep 16–17 FOMC. Use this as a benchmark when we compare to the actual statement/press conference.

9) Quiz

Chapter 1

📝 Open Session 1 Quiz – Click to launch in a new tab.

📝 Open Session 1 Quiz 2 – Click to launch in a new tab.

10) Homework 1-1: Understanding the Role of the Fed Chair

Due: Midterm 1

Objective

Play the FOMC simulation(s) and analyze the challenges faced by the Federal Reserve Chair. Provide thoughtful advice based on your experience and understanding of monetary policy.

Games Open Game 1 Open Game 2

Instructions

  1. Play the simulation(s): Spend at least 5 minutes in each game. Try different policy paths and note outcomes for inflation, unemployment, and output.
  2. Reflection questions:
    • Challenges as Fed Chair: Based on your experience with the simulation, discuss why being a Fed Chair is a challenging job. Reflect on the complexities in making policy decisions. How do constraints and trade-offs affect the role?
    • Advice to Fed Chair Jerome Powell: Given your insights, what advice would you offer as he navigates current economic challenges? What strategies or approaches would you recommend to address inflation, growth, and financial stability?

Deliverable

  • Write 1 page (≈300–500 words) answering the two reflection prompts.
  • Format: PDF or DOCX. Optional: include a brief log or screenshot of your policy choices.
  • Submit with your first midterm (or upload to LMS if instructed).

Grading (10 pts)

  • Engagement with simulation (3)
  • Analysis of challenges/trade-offs (3)
  • Quality of advice to Powell (3)
  • Clarity & mechanics (1)

Tip: Be specific—refer to how your rate changes moved inflation/unemployment over time and why.