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Michael Moskow, former head of the Federal Reserve Bank of Chicago, addresses Kellogg students on Jan. 16.

Michael Moskow gives Kellogg students glimpse into ‘unique’ Fed

Former Federal Reserve Bank of Chicago CEO visits Kellogg as ‘executive leader in residence’

By Aubrey Henretty

1/18/2008 - “Although it’s in the headlines every day, most people don’t really have a good understanding of the Fed,” said former Federal Reserve Bank of Chicago President and CEO Michael Moskow. “The Federal Reserve is truly a unique institution.”

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 A large classroom in the Donald P. Jacobs center could not contain the audience for Moskow’s Jan. 16 presentation, “The State of the Economy and the Role of the Federal Reserve.” For students, faculty and staff who didn’t arrive in time to get a seat, the talk was beamed — via live Webcast — to a screening room on the building’s fourth floor.

According to David Besanko, the Kellogg School's senior associate dean, planning and external relations, the big turnout for Moskow's presentation was no surprise: "Given the headlines about the economy in the papers during the last few days, Mike Moskow's talk was especially timely for our students," he said.

Besanko, who introduced Moskow on Wednesday, added, "The talk was a perfect example of the combination of rigor and relevance that defines the intellectual experience at Kellogg: a rigorous in-depth examination of the key drivers of today's economic conditions including the housing market and the credit crunch, combined with a discussion of how the Fed sets policy and what it might do in the upcoming weeks."

Also a former professor of strategy and international management at Kellogg, Moskow is the vice chairman and senior fellow on the global economy at the Chicago Council on Global Affairs. He is the latest distinguished guest of the school’s Executive Leader in Residence Series, a school-wide initiative that gives students unprecedented access to senior leaders through lectures, small-group lunches and informal question-and-answer sessions.

One thing that differentiates the Federal Reserve from other influential government institutions, said Moskow, is that its decisions do not require endorsement from any political party or the approval of Congress. “Politics are left at the door,” he said. “At the Fed, you know what you want to do, and then you go ahead and do it.”

The only time board members talk politics, Moskow said, is when they’re talking policy, making predictions. They ask themselves which federal policies are already in place and how, for example, higher or lower interest rates might affect an economy governed by those policies.

“They’re constantly trying to find out what’s happening right now and what people think will happen in the future,” he said. “This is an inexact science. This is an art.”

And like any art, a keen understanding of the economy demands working knowledge of human nature. Looking back on the recent sub-prime mortgage crisis and its fallout, Moskow said the forces behind it were clear: “People look at other investors, they see them earning high returns, and they want to jump on the bandwagon … Rapid growth in a company can cover up a lot of sins, and when the growth stops, they start to pop out of the woodwork.”

As the U.S. economy struggles to recover from the deflated housing bubble and resulting credit crunch, Moskow says the most successful companies will be the ones that hold themselves accountable every step of the way: “I think the key word here is transparency. The more transparent, the better.”

But the road to recovery may be a bumpy one. “Goldman Sachs, Merrill Lynch — all their economists are predicting recession,” said Moskow. “This is a really challenging time for the Fed, challenging for businesses and challenging for the American people.” Nonetheless, Moskow was confident the economy — which has survived far worse, he indicated — will bounce back.

Moskow will return to Kellogg in February and April to meet one-one with students. Until then, students, federal officials and economists alike will learn even more about the unseen market forces that affect their lives.

“History never repeats itself,” he said. “There’s always something different.