Today our team are very honored to have the chance to visit Federal Reserve of St. Louis Bank. It is one of the 12 Federal Reserve banks across the States. Basically, not each state has a branch of FR. When the Federal Reserve system was first built in 1914, St. Louis was the nation’s fourth largest city. Since then, Federal Reserve of St. Louis Bank has been worked as the headquarters of the Eighth District, which covers all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Even though Champaign is 3 hours drive from city of St. Louis, the banks in Champaign are under FR of St. Louis Bank’s supervision, rather than the one in Chicago.
Accumulated its fame in financial data base and analysis, St. Louis’s Fed has been quoted and mentioned many times in UIUC’s both financial and risk management courses.
Thanks to our Alumni, William Emmons, who’s the lead economist with the Center for House hold Financial Stability at Fed of St. Louis and the assistant vice president, we could enjoy his lecture and had discussion with him.
First, we were guided to visit the history museum. The Fed system has regulated American bank for more than 100 years, as a result, there are many good stories in the museum. It combined the development history and financial education with modern technology and provide a good form for general people. The security check at the entrance of the bank’s building was very strict. The guide explained that was because there still is vault for cash and gold under the floor.
After a glimpse of the museum, we finally met Mr. Emmons face to face. His presentation covered monetary policy, financial stability, supervision and regulation of financial institutions, payments and settlement system, consumer protection and community development, and last but not the least, research. The Federal Reserve happened to raise interest rate on 10 June, just two days ago, which drew a lot of audience’s attention. Mr. Emmons detailed why Fed decide to raise interest and how the decision was made by the FOMC committee. Fed used to have dual targets: the price stability and economic growth. They are no easy to match with each other. After the financial crisis in 2008, the voice of the third target, the financial stability, including settlement, trading system, was much louder than before. The central bank should take the big picture. Recently, America’s unemployment rate was as low as 3.8%, and the projected the real economic growth rate is 2.8% next year after deducting inflation. US’s projected nominal GDP growth will reach 5%! I was shocked by these numbers! According to his analysis, the Trump Bump happened mainly for two reasons: the tax cut policy and the adjustment changes between physical policy and monetary policy.
Besides, Mr. Emmons also covered the supervision of shelter banks, anti-money laundry and international banking supervision. In his opinion, the study of international banking supervision is far from enough.
Our crew members were also very interested in household economy and asked many valuable questions on that topic. It was difficulty to simply compare the real estate market between China and America. Mr. Emmons provided us some reliable information sources and different perspectives. For example, he suggested us visit IMF Global Housing Watch.
In his speech, he shared his ideas of 3 bubbles theory: house, health care and education. The first two bubbles have busted. However, the bubble of education has not been touched by now. The key question is how to add more value to American education system.
Before I went to this journey, I roughly scanned a few articles written by Mr. Emmons. In one of his writings, he regarded leveraged homeownership as a double-edged sword. Another interesting point in his study, is, even though the house price has increased a lots, compared to other investment methods such as equity and gold, householding is not a good way to accumulate wealth. Householding statistics in US is misleading, not only because it’s an aggregate number and the great volatility, but also because the risks underlying in householding.
Thanks Mr. Emmons for demonstrating us insights about the operating machinism of the financial and banking systems. It was an unforgettable experience for us!
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