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Adam Boone

Wisconsin MBA Welcomes Federal Reserve Economists

by Adam Boone Friday, April 24, 2015

I came to the Nicholas Center to learn specifically about corporate finance. But as an MBA student, I have a few additional gaps in my business knowledge. Beyond the specialization curriculum, every Wisconsin MBA students enrolls in core courses to fill in any holes we might have. And as a student who came from a non-business undergraduate education, I especially have benefited from the core business courses Wisconsin has to offer. 

In the second semester of the first year, one of the core courses is Economics for Managers. Consistent with Wisconsin's heavy emphasis on Applied Learning, the macroeconomics portion of the course is being taught through a series of five, 3-hour interactive sessions with economists from the Federal Reserve. These economists come from different Federal Reserve Banks around the country and work with Janet Yellen to shape monetary policy for the United States of America. The weekly lectures offer an opportunity to hear from economists participating at the highest level of monetary research and policy. 

In the first lecture of the series, the Wisconsin School of Business welcomed Dr. David Altig, Executive VP and Director of Research at the Federal Reserve Bank of Atlanta. Dr. Altig began the series on the basic structure of the Federal Reserve and the goals of the Federal Open Market Committee (FOMC) Meeting. 

What struck most of us was how small, yet critical, the portion of the US Economy the Fed directly controls. It would be easy to mistakenly believe that the Fed controls all interest rates across the board. But in reality the FOMC is primarily responsible for setting the Federal Funds Rate, the short-term(overnight) rate at which depository institutions can trade funds. The change in the Federal Fund Rate then ripples down through the economy to affect bank controlled short and long-term interest rates. And those rate changes have an impact on many activities like Interest-senstive spending (capital expenditures and real estate). And those elements may contribute to the overall health of the economy. Through one small yet powerful lever, the Fed tries to set the course for the US Economy. 

For someone like myself who does not have formal macroeconomics training, this was a fascinating insight into how government institutions try to manage the economy. It also showed that the Fed doesn't have a simple fix for a struggling economy but rather small adjustments which they hope will eventually produce the desired outcome. The experience of hearing from someone who conducts the policy was a great complement to the professor-led lectures. Those of us in the Wisconsin MBA program have four more macroeconomics lectures to look forward to before we wrap up the first year and the summer session begins.