Session 1 · The Federal Reserve FIN310

Intro, history, role, structure, current policy, leadership, and our 2010 JU visit (QE2 context).
Theme:

Start Here: Why Was the Federal Reserve Created?

Opening Video

We begin with two simple nicknames that explain why the Federal Reserve exists.

The Bankers’ BankThe Fed provides services and support to banks and helps the banking system operate.
The Lender of Last ResortDuring a financial panic, the Fed can provide emergency liquidity when ordinary funding is unavailable.

The Fed in Five | A History of the Federal Reserve

Watch this short history first. As you watch, ask: What financial problems led the United States to create a central bank?

Open on YouTube

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: 2010 and Today

Bernanke → Warsh
Fed Chair in 2010: Ben S. Bernanke (served 2006–2014).
Fed Chair today: Kevin Warsh, who took office on May 22, 2026.
Intro Current Chair
Advanced May 2026 Announcement
Recent Chairs (quick list)
  • Alan Greenspan — 1987–2006
  • Ben Bernanke — 2006–2014
  • Janet Yellen — 2014–2018
  • Jerome Powell — 2018–2026
  • Kevin Warsh — 2026–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

8a) Fed Chair Game 1 – Monetary Policy Simulator

Hands-on policy

Control the nominal interest rate and try to stabilize inflation and unemployment.

In this interactive macroeconomic simulator, you are the Fed Chair. Your task is to use the federal funds rate to stabilize inflation and unemployment while accounting for policy lags and trade-offs.

🎮 Open Fed Chair Game 1

Game Goals

  • Keep inflation under control
  • Keep unemployment from becoming too high
  • Understand how the nominal rate, real rate, expected inflation, and unemployment interact

How to Play

  1. Move the blue dot to set the nominal interest rate (i).
  2. Watch the real interest rate (r), unemployment (u), inflation (π), and expected inflation (πe) react over time.
  3. Try to keep both inflation and unemployment from becoming too high.
  4. Use PAUSE when you need time to study the relationships.
  5. Use RESET and try a different interest-rate path.

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 short round.
  • Step 3 – Student Play: Students play individually or in groups, tracking their outcomes.
  • Step 4 – Reflection: Compare strategies and explain the policy lags and inflation–unemployment trade-offs.

8b) Fed Chair Game 2: Trump vs. Warsh — Who Controls the Money?

Policy tug-of-war

A six-round policy game about President Trump, Fed Chair Kevin Warsh, war shocks, rate-cut pressure, Treasury buybacks, QE, and a hypothetical global Treasury selloff. Students must decide which institution controls each policy lever.

Game 2: Trump vs. Warsh

This interactive game runs on its own webpage and cannot be played inside this lesson page.

🥊 Open Fed Chair Game 2: Trump vs. Warsh For class use only; not for other purposes.
📊 How to Interpret Your Score

The game has six rounds. Each round is worth up to 3 points, for a maximum score of 18 points.

  • 3/3: Your answer fully matches the game’s expected allocation of legal and institutional authority.
  • 2/3: Your answer is mostly correct, but one part of the authority or reasoning is missing.
  • 1/3: Your answer matches only one part of the expected answer.
  • 0/3: Your answer does not match the institution that controls the policy tool.

Example: What does 1/18 mean? Only one of the 18 scoring elements matched the game’s answer key. This is a very low score.

Important: A low score does not necessarily mean that every policy you selected is economically bad. It means that you did not correctly identify who has the legal authority to make each decision. The president can pressure the Fed and nominate its chair, but the president cannot directly set the federal funds rate or order the FOMC to use QE or QT. Political preference is not the same as legal control.

8c) FOMC: September 15–16, 2026 — 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.

Current U.S. Snapshot — August 24, 2026

Fed funds target
3.50%–3.75%

Held at the July 28–29 meeting; the vote was 9–3.

July CPI
3.4% headline 2.5% core

Year over year. Headline inflation remains above the Fed's 2% PCE goal.

June PCE
3.7% headline 3.3% core

Year over year. This is the Fed's preferred inflation measure.

July labor market
−23,000 payrolls 4.1% unemployment

Employment changed little, but the payroll number was negative.

2026 Q2 real GDP
+1.5%

Advance estimate, annualized; down from 2.1% in Q1.

Next major releases
Aug. 26: PCE & GDP

August jobs arrive Sept. 4 and CPI Sept. 11, both before the FOMC meeting.

July FOMC CPI Jobs PCE GDP

The Long-Rate Puzzle

The policy rate is 3.50%–3.75%, but long-term Treasury yields remain much higher. On August 24, the official Treasury curve reported:

2-year: 4.24% 10-year: 4.70% 20-year: 5.21% 30-year: 5.23%

Class question: Why can long-term yields stay high when the Fed's short-term target is lower? Consider expected inflation, future short rates, term premium, federal borrowing, and investor demand. Would QE lower long rates? What risks would new QE create?

Official Treasury yield curve

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

Sample Prediction — Instructor Example (August 25, 2026)

  • Rate Decision: Cut 25 bps
  • Statement Tone: Neutral
  • Core PCE at Year-End: Above target
  • Labor Market at Year-End: Looser
  • Balance-Sheet Policy: Pause QT
  • FOMC Dissents: 2 or more

Sample justification: I predict a 25-basis-point cut because the labor market is weakening and economic growth is slowing. July payroll employment declined by 23,000, while second-quarter real GDP grew at a 1.5% annual rate. However, core PCE inflation remained high at 3.3%, well above the Fed’s 2% target. Therefore, I do not expect a 50-basis-point cut or a strongly dovish statement. A cautious 25-basis-point cut with a neutral tone would recognize weaker employment without suggesting that inflation has been solved. I expect the labor market to become looser, core PCE to remain above 2%, QT to remain paused, and at least two FOMC dissents.

This is only an example. Your prediction may differ, but you must support it with current evidence.

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) Fall 2026 Class Predictions

🔥 September 15–16 FOMC Focus: Rate move Tone: Dovish/Neutral/Hawkish QT: Continue / Slow / Pause

In-Class Survey Results — August 25, 2026

Students predicted the Federal Reserve's next interest-rate decision. Total responses: 29.

100-bps cut: 15 (51.7%) Stay put: 2 (6.9%) 50-bps cut: 3 (10.3%) 25-bps cut: 9 (31.0%)

Takeaway: Most students expected a rate cut, with the 100-basis-point cut receiving the largest share of responses.

9) Quizzes

Federal Reserve

📝 Quiz 1: Federal Reserve Structure – Fed Chair, Board of Governors, 12 Reserve Banks, terms, appointments, and the FOMC.

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

Due: Midterm 1

Objective

Use two short games and the pre-meeting checklist to learn how the Federal Reserve makes monetary-policy decisions. Then make your own prediction for the next FOMC meeting.

Activities Open Fed Chair Game 1 Open Fed Chair Game 2: Trump vs. Warsh Open Pre-Meeting Checklist & Prediction

Instructions

  1. Play Game 1: Spend about 5 minutes changing the interest rate. Notice what happens to inflation, unemployment, and the real interest rate.
  2. Play Game 2: Complete all six rounds. Notice which decisions belong to the president, the Treasury, or the Federal Reserve.
  3. Complete the pre-meeting checklist: Review the current information on inflation, employment, growth, financial conditions, and the Fed’s balance sheet.
  4. Make your prediction: Select your answers for the rate decision, statement tone, inflation, labor market, balance sheet, and dissents.
  5. Answer these three short questions:
    • Game 1: What happened when you raised or lowered the interest rate?
    • Game 2: What is one important difference between presidential influence and the Fed’s legal authority?
    • Your prediction: What do you think the FOMC will do next, and what two pieces of information support your prediction?

Deliverable

  • Write approximately 250–400 words answering the three short questions.
  • Include your six FOMC prediction choices.
  • You may work individually or in a team of no more than three students. Include all team members’ names on the submission.
  • Format: PDF or DOCX. A screenshot of your game results is optional.
  • Submit before Midterm 1: Email the file to the instructor or upload it to Blackboard.

Grading (10 pts)

  • Completed both games (2)
  • Completed the checklist and prediction (2)
  • Answered the three questions (4)
  • Clear writing and specific evidence (2)

This is an introductory assignment. There is no single required prediction. Your grade depends on completing the activities and explaining your reasoning with evidence.