Financial Markets and Institutions (2-downloads)

A Day at the Federal Reserve Bank of New York’s

Foreign Exchange Desk

Although the U.S. Treasury is primarily responsible

for foreign exchange policy, decisions to intervene in

the foreign exchange market are made jointly by the

U.S. Treasury and the Federal Reserve’s FOMC

(Federal Open Market Committee). The actual con-

duct of foreign exchange intervention is the responsi-

bility of the foreign exchange desk at the Federal

Reserve Bank of New York, which is right next to the

open market desk.

The manager of foreign exchange operations at the

New York Fed supervises the traders and analysts who

follow developments in the foreign exchange market.

Every morning at 7:30, a trader on staff who has

arrived at the New York Fed in the predawn hours

speaks on the telephone with counterparts at the U.S.

Treasury and provides an update on overnight activity

in overseas financial and foreign exchange markets.

Later in the morning, at 9:30, the manager and his or

her staff hold a conference call with senior staff at the

Board of Governors of the Federal Reserve in

Washington. In the afternoon, at 2:30, they have a

second conference call, which is a joint briefing of offi-

cials at the board and the Treasury. Although by

statute the Treasury has the lead role in setting foreign

exchange policy, it strives to reach a consensus among

all three parties—the Treasury, the Board of

Governors, and the Federal Reserve Bank of New

York. If they decide that a foreign exchange interven-

tion is necessary that day—an unusual occurrence, as

a year may go by without a U.S. foreign exchange

intervention—the manager instructs his traders to carry

out the agreed-on purchase or sale of foreign curren-

cies. Because funds for exchange rate intervention are

held separately by the Treasury (in its Exchange

Stabilization Fund) and the Federal Reserve, the man-

ager and his or her staff are not trading the funds of

the Federal Reserve Bank of New York; rather, they act

as an agent for the Treasury and the FOMC in con-

ducting these transactions.

As part of their duties, before every FOMC meet-

ing, the staff helps prepare a lengthy document full of

data for the FOMC members, other Reserve bank

presidents, and Treasury officials. It describes devel-

opments in the domestic and foreign markets over the

previous five or six weeks, a task that keeps them

especially busy right before the FOMC meeting.