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Economic Policies: Highlights from Bentley on Bloomberg
Monetary policy is, by its nature, an unpredictable tool. Just ask an economics professor about the U.S. Federal Reserve. You’ll learn about its surprise policy announcements and about investors panicking over bad financial decisions and incorrect forecasts.
Indeed, the Fed holds the power to stabilize the economy or, if things go awry, throw it into chaos.
The Fed also holds the power to teach you a great deal about doing business. By watching it operate, you’ll see what happens when people keep their heads about them, and when they don’t. And, if you’re lucky, you’ll see the subtle power dynamics that shape the economic and political environment.
Of course, these lessons are not always immediately obvious. What you need is a savvy economist or two and a few vivid examples.
Let’s look back over the last few years and see where the Fed’s actions, the frenzied media and the fragile markets take us. And, in turn, how intelligent analysis steadies any and every situation.
Here are five tried-and-true lessons that can apply to every economic situation.
And learn more about how Bentley University and Bloomberg Radio are working together on a monthly radio series, Bentley on Bloomberg, including other topics that have been discussed.
- Don’t Be Distracted By Hype
In September 2013, investors expected the Fed to start winding down its massive monetary stimulus, set in place at the peak of the financial crisis. A few minutes before Fed chairman Ben Bernanke’s big announcement on the matter, Scott Sumner, an economics professor at Bentley University, spoke with Bloomberg Radio.
Media reports claimed the Fed was poised to cut back its $85 million a month in bond purchases, the cornerstone of its efforts to spur the economy. Sumner questioned the wisdom of such thinking. It wouldn’t make sense, he said.
“Is tapering the right idea?” he asked. “If you look at the data, they really should not be tapering. They are falling short both on inflation and growth. I would think they would want to continue with the program.”
He calmly mulled over the nation’s economic situation and demonstrates what clear thinking looks like.
- Look For Creative Solutions
In this segment, on the same September day, David Gulley, economics professor at Bentley University, joins Bob Eisenbeis, vice chairman and chief monetary economist at Cumberland Advisors, in discussing the federal financial crisis.
The conversation occurs moments after Bernanke surprised investors by announcing that the Fed, in fact, would not begin tapering.
The market reacted swiftly. The U.S. dollar fell to a seven-month low against major currencies and the price of gold, a traditional inflation hedge, soared more than 4 percent.
Experts, such as Gulley, were asked if the Fed was responding to the financial crisis the right way. Many of its decisions had begun to be widely questioned.
Gulley said that over the past five years, the Fed had by all means won the “Most Creative Central Bank Award” but those unconventional actions had averted a worse financial crisis.
- Don’t Overvalue Charisma
Janet Yellen, now the first female chair of the Fed, was the talk of the town in November of 2013. People in the financial world and the media were loudly questioning whether someone without much charisma could succeed as the helm of the nation’s central bank. Gulley weighed in on the issue. He did not mince words.
“What’s most important is to run monetary policy that is the best for the country,” he said. “And the way that’s done is by having the most experienced and the most skilled people doing it.” He said it made no difference if a person was not “photogenic with a telegenic personality, as long as they’re competent.”
What’s most important is to run #monetarypolicy that's the best for country, says eco prof. #FedTWEET THIS
- Learn Not to Panic
The Fed again surprised some market watchers in December of 2013 by announcing a modest reduction, or tapering, in its bond-buying program. The reaction of the financial market was less reactionary than anticipated.
In an interview on the day of the announcement, Gulley said moving away from a culture of uncertainty is the key to a successful economy. Now there’s a performance lesson that holds true in any successful business situation.
- Stick to Your Storyline
In June of 2015, the Fed said interest rates would not be hiked, at least not right then. It did say, however, a hike could happen at some point this year.
Gulley, speaking with Bloomberg before the announcement, said the Fed should focus on the underlying issues driving policy decisions (like labor market conditions, GDP growth, inflation, etc.) and purposefully not address international economic volatility.
“They want to stick to their story,” he said, explaining that otherwise the markets may focus on the wrong thing.
In other words, even if losing your conversational focus isn’t about to upset the entire national economy, it’s always a good idea to stay on track.
More From Bentley on Bloomberg
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Meg Murphy is a freelance writer based in Cambridge, Mass. She has published work in the Boston Globe, Globe and Mail, National Post and Village Voice. A graduate of Columbia University Graduate School of Journalism, she has been a staff reporter at several daily newspapers. She worked on breaking news coverage that earned the Eagle Tribune staff a Pulitzer Prize in 2003.