2013 College National Fed

Challenge

Outline

Introduction
Current State of the Economy
Policy Recommendation
Concluding Remarks

Current State of the Economy

Unemployment
Inflation
Gross Domestic Product (GDP)
Housing and Investments
Federal Reserves growing Balance Sheet

Inflation

2.2

Median Short-Run and Long-Run Projections for Inflation (Annualized Percentage Points)
Survey of Professional Forecasters
Headline CPI

Core CPI

Headline PCE

Core PCE

Previous

Current

Previous

Current

Previous

Current

Previous

Current

2013:Q3

2.0

2.0

2.0

1.9

1.8

2.0

1.6

1.4

2013:Q4

2.0

1.7

2.0

1.9

1.9

1.7

1.8

1.5

2014:Q1

2.0

1.8

2.0

2.0

1.9

1.8

1.9

1.7

2013

1.7

1.4

2.0

1.8

1.4

1.2

1.5

1.3

2014

2.2

2.0

2.1

2.0

2.0

1.8

1.9

1.8

2015

2.3

2.2

2.1

2.1

2.0

2.0

1.9

1.9

Annual Averages

Median Forecasts for Selected Variables in the Current and Previous Surveys

Real GDP (%)

Unemployment Rate (%)

Payrolls
(thousands/month)

Previous

New

Previous

New

Previous

New

2013:Q3

2.3

2.2

7.5

7.4

142.7

169.4

2013:Q4

2.7

2.3

7.4

7.3

173.3

178.6

2014:Q1

2.5

2.7

7.3

7.2

179.0

171.2

2014:Q2

3.2

2.9

7.2

7.1

184.9

185.4

2014:Q3

N.A.

2.9

N.A.

7.0

N.A.

181.4

Quarterly:

Policy Discussion
Given the state of the economy, when
should the Fed taper QE?
How should it carry out that policy?

Policy Recommendation

Questions?

Backup Slides

From Abel, Bernanke, and Croushore 2010.

Topics of Backup Slides (that come

up during questions)
Social Security Disability
More on relationship between size of
balance sheet and inflation
Credit markets
Percentage of new Federal debt bought by
the Fed.
Maybe a plot of total debt % held by Fed
over time?

 Chain type price index

How do high inflation expectations now help
cause high actual inflation?
Put in that graph from 302 relating bank
independence and inflation rates
Money multiplier and supply in relation to
Fed Funds rate
Channels through which change in Fed

Questions to script answers to

Multiple channels through which a change in
the Fed Funds rate will affect the economy:
credit/balance sheet, where consumers will
invest and consume more; Asset
valuation/Reduction of external finance
premium; Cost of borrowing

Cont
How does Forward Guidance affect the
economy?
Expectations theory

How does Fed Funds rate affect

relative value of $ and Euro?
People will invest using currencies that have
a higher rate of return
So a lower Fed Funds rate means Europe has
relatively higher interest rates, and thus lowers the
value of the dollar.

How could this unconventional

policy cause asset price bubbles?
It is difficult to know whether or not were
actually experiencing a bubble.