The Federal Reserve is acting decisively and quickly to combat the current downturn in America’s economy, Frederic Mishkin, a member of the Board of Governors of the Federal Reserve System, said at the first annual Global Capital Markets Conference on Friday. The conference was sponsored by the Center for International Businesses at the Tuck School of Business.
Mishkin outlined four tools the Fed has been using over the past six months to alleviate economic pressures in his speech, “The Federal Reserve’s Tools for Responding to Financial Disruptions.”
The first is the increase of open market operations, giving the Fed more control over monetary policy by buying and selling securities. The second tool is the provision of overnight loans to commercial banks. The Fed’s third objective is to auction off a set amount of credit to financial institutions to release more funds to the market. These three tools are meant to increase market liquidity, the amount of money in the financial markets, Mishkin stated.
The final objective is to change the target federal fund rates to deal with macroeconomic pressures, for example lowering the federal interest rates to combat the subprime mortgage crisis, making it easier for investors to borrow money.
Mishkin believes these changes in monetary policy are working, he said.
Addressing inflation, Mishkin said that while the United States has maintained a low and stable level of inflation over the last two decades, in contrasts to the predictions of economists 20 years ago, central banks and policy makers need to be ready for inflation, he said.
The conference also featured two panels exploring what drives increased globalization in today’s economy.
“Basically the capital markets have globalized,” Lisa Miller, associate director of the Center for International Business, said. “There’s a huge amount of capital coming from other centers around the world. The purpose of the conference is to examine the forces affecting global capital markets.”
The panels, titled “The Competitiveness of the U.S. Capital Markets” and the “International Mergers and Acquisitions: Are Barriers on the Rise?” each consisted of four business professionals, all with different perspectives on the subject, Miller said.
“They were all extremely knowledgeable,” Miller said. “There was also geographic diversity. Some specialized in Europe, some in Latin America and so on. That was a huge win.”
Mishkin, who did both his undergraduate and graduate studies at MIT, began his speech by highlighting his only other visit to Dartmouth in 1971.
“I had never seen more drinking in my entire life,” he said. “I still have memories of people passed out.”