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 conduct of foreign exchange intervention is the responsibility 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 officials 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 intervention 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 currencies. Because funds for exchange rate intervention are held separately by the Treasury (in its Exchange Stabilization Fund) and the Federal Reserve, the manager 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 conducting these transactions. As part of their duties, before every FOMC meeting, the staff helps prepare a lengthy document full of data for the FOMC members, other Reserve bank presidents, and Treasury officials. It describes developments 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.