The Market Influencer

Yesterday i witness the power one man can wield over the most unpredictable force in the global economy. Yes i am referring to the one and only market influencer who can singlehandedly quell the notoriously unpredictable and uncontrollable Mister Market – The Federal Reserve Chairman.

Just picture this . Before his speech,

  1. The US 10 year yield was on a bullish trend.
  2. VIX was on a bullish trend.
  3. The three major US Indices were turning bearish

Yet with a single speech of his,

  1. the US 10 year yield went bearish
  2. VIX turn bearish
  3. The three major US Indices turned bullish

what power he wields !

What exactly are the functions of the Federal Reserve?

The Federal Reserve has four main functions:

  • Manage inflation: This is the Fed’s most visible function. As part of this function, the Fed also promotes maximum employment and ensures interest rates remain moderate over time.
  • Supervise the banking system: The Fed supervises and regulates the nation’s largest banks and enacts laws to protect consumers.
  • Maintain the stability of the financial system: It maintains the stability of the financial markets and constrains potential crises.
  • Provide banking services: The Fed provides services to other banks, the U.S. government, and foreign banks.

To summarize:

  • The Federal Reserve is the central bank of the United States.
  • The Fed manages inflation, regulates the national banking system, stabilizes financial markets, protects consumers, and more.
  • Although the Fed board members are appointed by Congress, it is designed to function independently of political influence.
  • The Fed plays a significant role in financial concerns that affect the lives of all Americans.

The Federal Reserve was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics (particularly the panic of 1907) led to the desire for central control of the monetary system in order to alleviate financial crises. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.

One could argue that the US wields an advantage by having the Federal Reserve. However with great power comes great responsibility. The process to elect a member into the FOMC board therefore should be handled with great care.

The seven-member board of governors is a large federal agency that functions in business oversight by examining national banks. It is charged with the overseeing of the 12 District Reserve Banks and setting national monetary policy. It also supervises and regulates the U.S. banking system in general. Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms. One term begins every two years, on February 1 of even-numbered years, and members serving a full term cannot be re-nominated for a second term. Upon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified. The law provides for the removal of a member of the board by the president “for cause”. The board is required to make an annual report of operations to the Speaker of the U.S. House of Representatives.

The chair and vice chair of the board of governors are appointed by the president from among the sitting governors. They both serve a four-year term and they can be re-nominated as many times as the president chooses, until their terms on the board of governors expire.

Below are the current members of the FOMC. I do wonder whether there should be a check and balance on the proportion of governors elected by each political party . The proportion should always be equal . What do you think?

GovernorPartyTerm startTerm expires
Jay Powell
RepublicanFebruary 5, 2018 (as Chair)February 5, 2022 (as Chair)
Richard Clarida
(Vice Chair)
RepublicanSeptember 17, 2018 (as Vice Chair)September 17, 2022 (as Vice Chair)
Randy Quarles
(Vice Chair for Supervision)
RepublicanOctober 13, 2017 (as Vice Chair for Supervision)October 13, 2021 (as Vice Chair for Supervision)
Lael BrainardDemocraticJune 16, 2014January 31, 2026
Miki BowmanRepublicanNovember 26, 2018
February 1, 2020 (reappointment)
January 31, 2034
Chris WallerRepublicanDecember 18, 2020January 31, 2030
VacantJanuary 31, 2024

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