The Federal Reserve, though difficult to understand, influences most aspects of America’s economy. The two principles most followed by the Federal Reserve are promoting high levels of employment and managing stability in prices. Michael Chriszt, vice president and regional engagement officer of the Federal Reserve’s Atlanta Bank, addressed Noon Rotary on Thursday and gave a brief history of the Federal Reserve and the strategies on following their two utmost principles. 

“The Federal Reserve is a mysterious organization and a strange organization,” stated Chriszt. He then opened his presentation by diving into what makes the Federal Reserve such an obscure entity. “There is a historical reason for it. We talk about the independence of the Fed, where a lot of people think we have a lot more influence that we actually do, and we talk about accountability at the Fed.” 

“So regarding our history, the Federal Reserve is about 110 years old, but it isn’t the first attempt at central banking in the United States.” Chriszt then talked about a great debate between Alexander Hamilton and Thomas Jefferson immediately after the American Revolution. According to Chriszt, the musical “Hamilton,” actually depicts this debate accurately. “Hamilton thought we needed a strong centralized financial system to help the country operate like it needs to. Jefferson’s view was, ‘We just fought a war to get rid of that system, so why would we want to impose that on ourselves?’”

George Washington ultimately agreed with Hamilton, so the first bank of the United States was created. Congress created the bank with a 20-year charter in which after that allotted time, Congress would have to renew the bank for it to carry on. After that 20-year span, those in power sided more with Jefferson’s point of view and opted to not renew the bank system, so the bank ceased to exist. 

“We all know what happened in 1811 and 1812. We had another war with Great Britain. After that war, our country's finances were in a mess and the debate kicked off again, not between Hamilton and Jefferson, but people who held both points of view,” stated Christz. James Madison, who originally sided with Jefferson, wanted a strong central bank and wished to fix the country’s finances as president. This created the second central bank in America in 1816. 

In 1836, Andrew Jackson was president and was quoted as saying the second central bank was “a den of vipers and thieves.” The charter on the second bank was not renewed and up until the 1900’s there was no central bank in America. “If you think about how our country was really modernizing in the late 1800’s, our financial system really wasn’t keeping up with how industrialized we were becoming,” stated Chriszt. 

After many economic crises, the original Hamilton-Jefferson debate was sparked again. “This time I think they got it right, because they came up with a compromise,” stated Chriszt. Both views came together, and that reflects the Federal Reserve System we have today. 

The Hamiltonian view created the Board of Governors in Washington D.C. and the Jeffersonian view created 12 Federal Reserve banks around America. “We are not part of the government,” stated Chriszt. “I am not a government employee, despite having ‘Federal' in the name of the place I work. I don’t work for Jerome Powell. I work for Raphael Bostic.” 

According to Chriszt, the 12 Reserve banks are not part of the government, and they are set up in a way to be representative of people around the country. This keeps policies out of the hands of the government and the financiers. 

“That’s what keeps that balance. We are kind of the government, but we aren’t really the government. The Board of Governors in Washington D.C. has oversight over those banks, but what they don’t have oversight of is how Raphael Bostic votes on monetary policy when they get together and decide on what to do with interest rates,” said Chriszt. He noted that type of independence is key in the Federal Reserve today. 

“The idea that the Fed can do whatever it wants is not really how it works. We are a creation of Congress. We are accountable to the American people through their elected officials and Congress, at any time, can come in and change the Federal Reserve Act,” he said. 

Congress, according to Chriszt, tells the Federal Reserve to keep inflation low and employment high, and lets them dictate how it is done. 

He noted that independence is also important because countries that have strong governmental influence over the economy witness much higher rates of inflation. 

Chriszt stated that getting out and publicly speaking to the people is a large part of the accountability that the Federal Reserve takes on, and said that it was not always like that. “The idea of being open and being present and listening to what the people have to say is a really big part of what the Fed is today.” 

Chriszt wrapped up his presentation by talking about the current state of inflation, noting that it is much higher than the Federal Reserve’s target. “We have seen it come down a little bit, mainly in goods, but there are still big parts of the economy where we are still seeing price increases. Part of the reason we are seeing price increases on the services side is because labor markets are so tight. The demand for workers is outpacing the supply of available workers.” 

“The outlook is that by the end of next year, we will be closer to that two-percent inflation mark that we are wanting,” said Chriszt, inviting everyone to see the projection on the Board of Governors website. “They expect the economy to slow down. No one is forecasting a recession, at least not within the Federal Reserve, but let’s be honest; the risks are on the downside. The chances have gone up that the economy is going to slow down a little bit more than we thought.”

“As the Fed, we are responsible for bringing inflation down. My boss has said it, and he just gave a media interview the other day where he said it again. We are going to do what we have to do to bring inflation back down, because in the long run that is the best thing we can do to provide conditions for strong growth going forward. So trying to balance all that without knowing how the financial market turmoil is going to play out is what we are struggling with right now. You will see that incorporated into the decisions the Fed makes going forward with regard to interest rates.”  

Chriszt will continue his discussion of the Federal Reserve and the balance between employment and inflation on 91.3-WCPI McMinnville Public Radio on Tuesday at 5 p.m. 

This radio broadcast will also be rerun on Wednesday at 5 a.m., Thursday at 1 p.m. and on Friday at 1 a.m.