Federal Reserve - Essay Example

The Federal Reserve Board is composed of seven governors; hence, there are presently two vacancies to be filled. All members of the Board of Governors have extensive experience in economic policymaking. Bernanke, Kohn, Warsh and Tarullo, for instance, have all assisted US Presidents – from Bill Clinton to George W. Bush - in economic policymaking while Duke came from the private sector. The board chairman and vice chairman both hold PhD in economics, while governors Tarullo and Walsh both have law degrees.

Duke, on the other hand, has an M.B.A. and had been specializing in banking and finance throughout her career. can predict future recessions. The first is that the current monetary policy significantly influences the yield curve spread and that it could demonstrate the real growth activity in the next several quarters. An example case is when the yield curve tends to be flattened by a rise in short rate. Second, the yield curve contains expectations on future inflation and real interest rates.

The aggregate information from these variables are crucial in analyzing economic activity and outlining future trends and patterns. The expected real rate, as Estrella and Mishkin pointed out, may be associated with future monetary policy and therefore, of future economic growth. Then, inflation as reflected in the yield curve becomes an indicator as well because it is informative about future growth. In a study by Estrella and Mishkin, the yield curve model’s success in predicting the probability of recession is demonstrated by results that came out of the data from the first quarter of 1960 to the first quarter of 1995.

“The corresponding predicted probability of recession in the third quarter of 1995 was only 0.2 percent, and indeed, a recession did not materialize. In contrast, the yield curve spread averaged –2.18 percentage points in the first quarter