Federal Reserve Bank Vice President Addresses Rotary Club

Despite the word "federal" in its name, the Federal Reserve Bank's actions and decisions are not determined by the sometimes shifting political landscape and which president is in power.

So stated Michael Chriszt, vice president of the Federal Reserve Bank of Atlanta, in a talk to the Rotary Club of Greeneville on Tuesday.

The Federal Reserve, which sets the prevailing interest rate and other monetary policy, is "an independent organization set up that way on purpose," Chriszt stated.

Chriszt said that after working for the Federal Reserve 35 years, he has concluded, "it's a very strange organization. I'll be the first to admit that."

The Federal Reserve Bank of Atlanta, where Chriszt works, is one of 12 regional Federal Reserve Banks located in cities throughout the U.S.

The Board of Governors, located in Washington, D.C., is the governing body of the Federal Reserve System. It is an agency of the federal government that reports to and is directly accountable to Congress.

As the nation's central bank, the Federal Reserve Bank regulates and oversees privately owned commercial banks.

Federal Reserve Chair Jerome Powell on Friday endorsed an imminent start to interest rate cuts, saying further cooling in the job market would be unwelcome and expressing confidence that inflation is within reach of the U.S. central bank's 2% target.

Interest rates have risen since COVID-19 in 2020 in a move by the Federal Reserve to slow down the economy that rebounded quickly from it, and thereby reduce the inflation rate, Chriszt noted.

The central bank is the result of two strongly opposing views expressed by Alexander Hamilton on one side and Thomas Jefferson on the other side, he said.

Hamilton in 1791 argued for a strong central bank to manage the economy, said Chriszt, while Jefferson favored a much more decentralized approach to monetary policy.

Hamilton's view initially prevailed for 20 years, then Jefferson's view did. A seesaw struggle ensued, and the two approaches took turns being the prevailing one. It was initially called the Bank of the United States.

Founded by an act of Congress in 1913, the current Federal Reserve's stated primary purpose is to enhance the stability of the American banking system.

Chriszt said the U.S. Congress has given the Fed, as the Federal Reserve Bank is often referred to, two goals: 1) to be sure the inflation rate is low and stable; and 2) try to create conditions in the economy to maximize employment.

Its concern is national policy, and it bases its decisions on input from businesses across the U.S. who are contacted by members of the regional Federal Reserve Banks, including the one in Atlanta Chriszt is employed by.

"Inflation rose coming out of the pandemic (in 2020) because of its effect on the supply chain," he said. "We rebounded well," but the unexpectedly strong demand for goods and services faced a constricted supply chain, which led to high inflation.

"The Fed started using tools to bring the inflation rate down by raising the interest rate. People borrowed less. Usually, the economy then tips into a recession," but fortunately, "that hasn't happened.

"We've seen an increase in unemployment in the last two months, but that's not necessarily bad," Chriszt stated.

Since the Fed's target rate for the annual inflation rate is 2 percent, a slowing economy has led to a slower inflation rate, so "now it looks like it's time to lower interest rates.

"Whether (the current inflation rate) is 3.1%, or 2.9%, I don't care," Chriszt said. "We're not hearing anything (except) that the downward trend in inflation is real."

In response to questions from those in the audience, Chriszt said "there are a lot of things the Fed does to keep the nuts and bolts (of the economy) running," including having established a consolidated, and therefore, quicker electronic payment system.

Despite the concerns of some that the U.S. will soon start using a digital currency system and thereby infringe on the personal privacy of individuals, Chriszt rejected the need for such concerns.

"It (a digital currency system) is going nowhere here in the U.S. without Congress's approval," not even on an experimental basis, he said.