| Figuring out what
the Fed does
If
mystery makes for fascination, then the U.S. Federal
Reserve System should be a spellbinder. Business people
stay glued to CNN or an Internet news service each time
the Fed’s Open Market Committee meets to decide
whether to raise or lower the fed funds rate. Each meeting
is preceded by days of speculation. Stock markets quiver
immediately after each decision. But what does the Fed
do and how does it do it? Not many people know.
We
at Virginia Business have been curious for some time
about the role of Richmond’s Federal Reserve Bank.
One thing that sparked our interest was the high state
of security at its headquarters in a distinctive white
tube downtown. The added security dates back even before
the Sept. 11 terrorist attacks. And, the Richmond Fed,
which covers most of the Mid-Atlantic region and is
one of 12 Fed districts, is one of Richmond’s and
Virginia’s few remaining emblems of finance. Most
of the big banks that made Richmond a banking center
have fled to Atlanta or Charlotte, but the Fed remains
and that’s a source of pride.
When
we talked over the possibility of a Fed story some months
ago, one writer came to mind — Jack Milligan. Based
in Charlottesville, Jack seemed a natural since he is
highly experienced in financial reporting and writing.
Before coming to the Old Dominion, Jack was editor-in-chief
of U.S. Banker magazine in New York and had been an
editor and writer at Institutional Investor. Central
bank matters aren’t that easy to decipher, but
Jack’s experience and understanding cut to the
quick. We also decided to tie our Fed piece together
with our annual State of the State comparisons of how
Virginia stacks up against other states. In this case,
we chose to look at Virginia’s performance versus
that of the other four states in the Richmond Fed District.
To round out the Fed package, Senior Editor Robert Burke
writes an intriguing tale about how during the Cold
War, the Fed had its own secure, bombproof bunker near
Culpeper.
Another
individual who helped the story immensely is J. Alfred
Broaddus Jr., the Richmond Fed’s president. The
Richmond native is not only a serious academic in economics
but works hard to reach out to people from all strata
of business. Jack and I spent two hours with him. By
raising the level of the Richmond Fed’s research
and analysis, Broaddus has won strong respect from Fed
members and watchers everywhere, including Alan Greenspan.
I
came to understand just how much power central banks
have by watching them in other countries. One was Russia,
where I was working for Business Week back in 1993.
Communism had fallen only 18 months or so before. The
Central Bank of Russia was trying hard to reel back
inflation, which at one point approached 2,000 percent
per year. Just as the monster seemed to be caged, Central
Bank President Viktor Geraschenko blundered by deciding
to call in the currency. He created pandemonium as ordinary
Russians saw their life savings vanish over the period
of one weekend.
Virginians
can be glad that our Fed is a little more sophisticated.
So what does the Fed do? Read our package.
Return
to Virginia Business - February 2003
|
