Did you know there is a group of people - nineteen in total, who likely influence  your life more than any other? Well, at least when it comes to the economy,  interest rates, whether we have a recession, your job, your mortgage rate, CD  rates, market performances, your livelihood…. Who might this group be? The US Federal Reserve.  

If knowing nineteen leaders who control whether we have headwinds or tailwinds  gives you pause, then knowing that twelve of the nineteen leaders have voting  authority, any given year, that determines the direction of our economy may cause  greater concern. 

The Federal Reserve not only impacts virtually all Americans, but their actions also  influence the world economy. With Jim Bullard, President of the Federal Reserve  Bank of St. Louis announcing his resignation from the board last week, this might  be a good time to examine the three significant bodies of the Federal Reserve. 

The Federal Reserve Board of Governors is comprised of seven members - nominated by the President and confirmed by the Senate. A full term is fourteen years, each term begins every two years on even number years. The Chair, Vice  Chair, and Vice Chair for Supervision serve for four years within their fourteen-year term. These three positions are also appointed by the President and confirmed by  the Senate.  

There are twelve Federal Reserve Banks in the nation. The President of each  Federal Reserve Bank is chosen by their private sector board of directors and is subject to approval by the Board of Governors.  

The Federal Open Market Committee (FOMC), which meets eight times / year, or  more if a special meeting is called, is comprised of twelve voting members. The  Committee consists of the seven Board of Governors, the President of the NY  Federal Reserve Bank, leaving four remaining positions - filled by four of the  remaining Fed Presidents on a one-year rotating basis. Although all twelve Presidents attend the FOMC meetings and are allowed to participate and to  represent their respective region. 

The Federal Reserve is charged with two primary functions: 

• To maximize employment 
• And to provide for price stability (modest inflation) 

With last week’s economic reports, it appears we are entering a disinflationary  period in the US. Disinflation, or lower increases of inflation, is not to be confused  with deflation, or falling prices. It is too soon to deem inflation fully tamed, but it  certainly appears things are cooling off. However, some economists warn that due  to headline inflation being measured month-over-month over rolling twelve month periods, the CPI and PPI numbers could revert higher over the short-term due to earlier months rolling off. Even so, inflation is clearly significantly lower  than the 9.1% recent high set back in June of last year. 

Putting it all together  
The Fed, comprised of three primary groups – Board of Governors, Federal Reserve  Banks, and the FOMC, has great influence on economic headwinds and tailwinds,  not only here at home, but across the globe. The Fed seems to have created a  backdrop that resulted in a fantastic job market, but also a period of high inflation  primarily due to extraordinary intervention during Covid. The FOMC appears to be  dedicated to tackling inflation by reducing money supply and hiking rates.  

To be continued…  
We are in the beginning of earnings season when corporations report their stats  for the prior quarter. An upcoming update will focus on corporate earnings and  the multiple that investors are paying for those earnings, with hopes of uncovering  the building blocks of fundamental equity analysis. Next week, all eyes will be on  the updated money supply, along with the FOMC decision on rates. Currently,  another hike is highly anticipated. 
  
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