Article 3: Craig Torres and Jeff Kearns, “Stein Says Fed Should Weigh Financial Risks in Stoking Job Gains,” Bloomberg.com, March 22, 2014. Available at http://www.bloomberg.com/news/2014-03

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Remarks by Federal Reserve Governor Jeremy Stein suggest that if bond markets become overheated, monetary policy makers should take a less accommodative stance even if unemployment

remains higher than they desire, in the interest of maintaining financial stability. Class discussion can be related to:
•    Term structure of interest rates; yield curve; term premium (Chapter 6)
•    Federal Reserve Board of Governors (Chapter 13) [Business School Edition Chapter 16]
•    Fed balance sheet; open market operations; monetary base (Chapter 14) [Business School Edition Chapter 17]
•    Federal funds rate; market for reserves; conventional and nonconventional monetary policy tools (Chapter 15) [Business School Edition Chapter 18]

•    Goals of monetary policy; hierarchical versus dual mandates (Chapter 16) [Business School Edition Chapter 19]
•    Aggregate demand and interest rate; aggregate demand and supply analysis (Chapters 20-22) [Business School Edition Chapter 23]
Questions for Discussion
1.    Define the following terms and phrases used in or related to this article:
a.    accommodative monetary policy
b.    overheated bond market
c.    Fed’s benchmark lending rate
d.    term premium
e.    autonomous easing of monetary policy
What are the goals of monetary policy? Does the Fed have a hierarchical or a dual mandate? Explain.
Have Fed policy makers focused on easing or tightening monetary policy since the 2007-2009 financial crisis?
.    What conventional and nonconventional tools has the Fed used to achieve its monetary policy goals during this period?
a.    How have the Fed’s policies affected interest rates? Using aggregate demand and supply analysis, discuss how Fed policy makers expect their impact on interest rates to influence

aggregate demand, aggregate output, and the rates of inflation and unemployment.
b.    How and why has the Fed’s use of these tools affected its balance sheet? What concerns does this raise?
Who is Jeremy Stein? Why is he concerned that the Fed’s monetary policy may be too accommodative?
What was the term premium on U.S. 10-year notes in the spring of 2013?
.    What does the value of the term premium imply about the relationship between short-term and long-term yields at that time? What does it imply about the yield curve?
a.    What does Stein see as the “dark side” of this situation?
Which goal of monetary policy is emph