Podcast Summary
Fed's New Approach to Economy Management Not Well-Understood: The Fed's new approach to managing the economy and setting interest rates, which began in 2008, is not fully incorporated into economics textbooks and misunderstood by the public.
The way the Federal Reserve sets interest rates and manages the economy has significantly changed in recent years, but this new approach is not well-understood in economics classrooms. Jane Ihrig, a senior adviser at the Federal Reserve, emphasizes the importance of teaching students about the Fed's role and its new methods. The Fed's primary goal is to balance employment and inflation, but the public's understanding of the Fed is often misinformed. The Fed's new approach to interest rates, which began in 2008, is not fully incorporated into economics textbooks. Ihrig and her co-authors wrote a paper to help economists understand these new tools. The Fed's interest rate decisions are crucial for the economy, and it's essential that students and the public have an accurate understanding of how these decisions are made. The US Postal Service's Ground Advantage offers a simple, affordable, and reliable shipping solution, much like the need for clear and accurate economic education.
The Fed controls inflation and interest rates by selling bonds to reduce cash in the system: The Fed sells bonds to decrease cash availability, making it harder for banks to lend, controlling inflation and interest rates.
The Federal Reserve (Fed) raises interest rates by selling Treasury bonds to banks, reducing the amount of cash in the banking system. This scarcity of cash then leads to higher interest rates between banks, which in turn raises interest rates for consumers on loans like car and business loans. The ultimate effect is a slowing down of the economy and a decrease in inflation. In simpler terms, the Fed sells bonds to take cash out of the system, making it harder for banks to lend to each other and to consumers, thereby controlling inflation and interest rates. This is the old way the Fed used to operate, and while the methods have evolved, the basic concept remains the same.
Fed's role in managing economy shifts during recessions: During economic downturns, the Fed changes tactics from buying and selling bonds to raising interest rates directly on banks' reserves to manage the economy's speed.
During economic downturns, the Federal Reserve's role in managing the economy shifts. Prior to the 2008 recession, the Fed acted like a plumber, buying and selling bonds from banks to control the economy's speed. However, when the scale of intervention became enormous during the recession, banks became flooded with cash and less responsive to the Fed's bond buying. As a result, the Fed changed tactics and began raising interest rates directly on the cash that banks hold with the Fed, allowing them to do the plumbing work themselves. This shift in approach is important for understanding how the Fed manages interest rates and the economy during times of abundant reserves. This idea, proposed by economist Jane Ihrig, was aimed at reaching young economists in training, who are learning about monetary policy in advanced placement macroeconomics courses.
AP Macroeconomics Curriculum Update: A Long-Awaited Relief for Teachers: An outdated AP Macroeconomics curriculum presented challenges for over 100,000 students annually. After years of advocacy, the curriculum was updated, but teachers needed to adapt to the new methods.
Outdated economics curriculum posed a significant challenge for over 100,000 students taking AP Macroeconomics each year. Jane, an educator, and Scott Walla, an economics education coordinator at the Federal Reserve, recognized the issue and reached out to the College Board to address it. However, the change required a major overhaul of textbooks and exams, which would take time. In the meantime, teachers like Mike Kimon from Timberland High School in Missouri continued to teach using both the old and new methods. After years of advocacy, the AP Macroeconomics curriculum finally began to be updated, bringing relief and excitement to the teachers involved. But with the change came the need for teachers to learn the new methods as well.
Financial literacy education gains importance in schools and real estate investments offer opportunities: Teachers are embracing financial literacy education despite some colleagues' reservations. High interest rates create discounted real estate assets for investment, while Saatva mattresses provide high-end quality at affordable prices.
There's been a shift in the demand for financial literacy education. Teachers like Mike are excited about the new curriculum, but not all colleagues are on board. Some question the need for such lessons, but proponents argue that financial literacy is crucial for managing student loans, mortgages, and other financial obligations. The Indicator episode, featuring Scott and Jane's teaching materials, can be found at npr.org/money. The episode was produced by Nicky Ouellette and engineered by Robert Rodriguez, with contributions from Mary Claire Pete, Viet Le, Kate, and Cannon. Meanwhile, in the business world, high interest rates have led to discounted real estate assets, making it an opportune time for investment through platforms like Fundrise. Listeners are encouraged to consider the risks, charges, and expenses before investing. Lastly, Saatva luxury mattresses offer high-end quality at affordable prices, making them an attractive option for those looking to upgrade their sleep experience. Visit saatva.com/npr and save an additional $200.
