Evaluating Current FOMC Actions

Through this activity, students will discover:
- The Federal Reserve's commitment to communicating FOMC actions.
- The nature of current FOMC monetary actions.
- The extent to which FOMC actions, designed to promote broad macroeconomic goals, may impact various stakeholder groups.
- The challenges inherent in communicating complex information to a diverse audience.

This activity is designed for a Principles of Macroeconomics course as a final activity in the coverage of monetary policy. Given the group work component, the activity is best suited to smaller classes (up to 40 students), but could be adapted for larger classes (as an independent writing assignment). A minimum of thirty minutes is needed with the potential for expansion to fifty minutes, through variations and expanded discussion. An overhead projector or document camera is needed to project images for the class to view.

The Federal Reserve, in recent years, has placed an increased emphasis on communicating monetary policy actions to the public. Communicating complex information to a diverse audience is inherently difficult. Through this activity, students will apply their knowledge of monetary policy and practice their ability to understand complex communications.

• Prior to class, provide students with a copy of the Press Release summarizing the most current FOMC meeting (available at: http://www.federalreserve.gov/newsevents/default.htm -sample attached as PressRelease Press_Release (Acrobat (PDF) 281kB Oct4 13) ). Ask students to read the Press Release, highlight the most critical information and prepare a brief typed three sentence summary that addresses the following (Note, this preparation is designed to improve the effectiveness of the class activity as discussed at: http://serc.carleton.edu/econ/justintime/index.html ) :

• The Committee's current assessment of the economy (in broad terms).
• The actions taken by the Committee.
• The expected impact of the Committee's actions (based on the student's understanding of monetary policy).

• At the start of class, collect the typed summaries. Students will retain their highlighted copies of the Press Release.

• Divide the class in to small groups of 3 to 5 students. Each group will be assigned an "identity". (A resource on cooperative learning/group work is available at:
  http://serc.carleton.edu/econ/cooperative/index.html). Suggested identities include:

• Banker
• Real Estate Developer
• Homeowner with a variable rate mortgage
• CEO of an automobile manufacturing corporation
• Stockbroker
• Retiree living on interest from a bond portfolio
• Foreign investor
• Company preparing to launch an IPO

• Prior to joining their groups, students are instructed to spend two minutes thinking about how their "identity" might be impacted by the most recent actions of the FOMC.

• As groups, students will discuss how the Committee's actions will likely impact interest rates and how changing interest rates are likely to impact the group's "identity". Students are then asked to construct a (pretend) Tweet that reflects an understanding of and reaction to the Committee's actions (from the perspective of their "identity"). Illustrate the format of a Tweet, by projecting the attached document (Tweet_Mechanics).

• Each group will display their Tweet to the class using the overhead projector, providing supportive verbal narrative, as needed. As the Tweets are displayed, the instructor will facilitate a discussion, highlighting key terminology and reinforcing the macroeconomic impact of the Committee's actions.

VARIATION:

• Expand the activity by creating a second set of groups. The new groups will represent the larger economy and will consist of one member from each of the original "identities". Each person will share the perspective of their "identity" with his or her new groupmates. The group is tasked to identify commonalities and differences in the reactions of the various "identities".
  
  

Given the complexity of the topic, the discussion will be most fruitful if it remains focused on the short-run impact on interest rates. As students present their Tweets, guide the comments to this key issue.
Students who did not complete the assignment prior to class should be distributed amongst the groups, and advised to "listen and learn" as their group members engage in the initial discussion.

Include, on an exam encompassing monetary policy, the following question:

• Describe the most recent actions of the FOMC and the likely impact of these actions on a specific group of people.

Additional short-answer questions might include:

• What other "identities" might be impacted by the Committee's actions in the short run? In the long run?
• Would you expect to see the President or a Senator Tweet their reaction to the Committee's actions?
• Do you think the actions of the Committee were likely anticipated by the markets? How might you confirm the extent to which the markets anticipated the Committee's actions?
  
  

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