EXCLUSIVE: Guys who run the world economy

THEY sit behind the scenes pulling the strings, but you probably don't even know they exist.
Officials at the US Federal Reserve hold confidential meetings eight times a year where they pore over economic data from business confidence to building approvals to gauge how the economy is tracking.
What they decide determines monetary policy for the $17 trillion US economy and can trigger changes in interest rates, foreign exchange rates, employment and the price of goods around the world.
Now, with Janet Yellen at the helm - the first female in their 100 year history - the Fed is about to start winding back stimulus measures which could have a massive impact on Australian markets, including everything from how much your mortgage costs to where you go on holiday.
Confused? This is how it works.

The Federal Reserve, as the central bank that regulates the world's biggest economy, is the linchpin of the global financial system.
It's run by a Board of Governors and Federal Open Market Committee (FOMC) responsible for setting monetary policy in the US covering everything from lending rates to reserve requirements and regulation of the banking system.
Their huge scope means what they do impacts every other financial market in the world, ensuring economists hang on their every word and traders make or lose billions by their decisions.
Westpac economist Elliot Clarke said the Fed is the bedrock of the global financial system and their decisions are "very very important" for the Australian economy.
"They're considered a baseline for markets, it's up to market economists to add more colour," he said.

So who are they?
The FOMC is usually made up of 12 people, including seven from the Board of Governors and five from Federal Reserve banks around the country. But at the moment there are just 10 people due to vacancies in certain seats.
These are the 10 members of the FOMC for 2014
• Janet L. Yellen, Board of Governors, Chair: Former economics professor who previously served as vice chair under Bernanke and is said to be keen to tackle unemployment.
• Jerome H. Powell, Board of Governors: Has a law degree and once served as assistant secretary and undersecretary of the treasury for George Bush.
• Sarah Bloom Raskin, Board of Governors: Took office in 2010 after serving as commissioner of financial regulation in Maryland.
• Jeremy C. Stein, Board of Governors: Former Harvard economics professor who has previously been secretary of the treasury and on staff at National Economics Council.
• Daniel K. Tarullo, Board of Governors: Law professor who was President Clinton's assistant on international economic policy.
• William C. Dudley: Sits on the FOMC permanently as president of New York Federal Reserve and was previously managing partner and economist at Goldman Sachs.
• Richard W. Fisher: President of Dallas Reserve Bank who grew up in Mexico and started his own companies before selling controlling interests when he went into government.
• Narayana Kocherlakota: Baltimore native who was economics professor and research economist at Reserve Bank of Minneapolis before rising to become president.
• Sandra Pianalto: Italian-born economist started out as in the research department in 1983 and rose to become boss at the Reserve Bank of Cleveland.
• Charles I. Plosser: Former Stanford professor who worked as a consultant to high profile companies and banks before becoming President of Reserve Bank of Philadelphia.
What's it to me?

Janet Yellen takes the helm at perhaps the trickiest time in the Federal Reserve's history.

Since the financial crisis, the central bank has embarked on three distinct phases of "quantitative easing," a program of purchasing treasury bonds and mortgage backed securities designed to help the US economy recover its strength.

The last phase, known as Operation Twist, began in September 2011 has seen the Fed provide $85 billion worth of stimulus every month from January to November 2013. However they're now looking to wind this back, dropping it to $75 billion in December 2013 and $65 billion in January 2014.

Mr Clarke said the Fed expects to reduce this by $10 billion a month until the economy can stand on its own two feet, relying on "incomes and regular activity drive the economy rather than just excess liquidity."

The impact in Australia depends on how things pan out, but Mr Clarke said the main thing markets don't like is uncertainty.

"Any data and decision within expectations doesn't tend to impact markets all that much. What is actually a contractual shift in policy can be seen as a positive. It really is to do with market psyche and how this expectations or piece of data impacts markets going forward," he said.

However as the Fed is essentially turning off the money tap and hoping for the best, there is a major risk it won't proceed as expected.

"Our general concern is its [the US economy] is not as strong as people make it out to be. There is a risk that the Fed won't be able to continue to taper and markets might react in a different way, we might actually see a much more prolonged period of tapering," he said, which would mean the Aussie dollar remaining at current levels.

"Our purchasing power would actually be staying around the same level rather than deteriorating. That's a positive for Australian consumers."

However this could provide a risk to markets, where fears over US growth have a negative impact.

"Concerns over the US growth trajectory gets market participants scared and they tend to want to reduce their exposure to risk which means they sell equities," he said.

"It's just really all about market expectations and how they relate to the data we see. Without those that factors you're likely to see continuation in a range around the current level."

Billionaire's Perspective: "Why the Rich deserve to be Richer"

AMERICAN billionaire Sam Zell says the 1 per cent earn more money because they work harder than everybody else.
The investor and chairman of Equity International said America's rich should be emulated, not criticised.
"The quote '1 per cent' are being pummelled because it's politically convenient to do so," Mr Zell said in an interview with Bloomberg.
"The problem is that the world and this country should not talk about envy of the 1 per cent it should talk about emulating the 1 per cent.
"The 1 per cent work harder. The 1 per cent are much bigger factors in all forms of our society."
Mr Zell, who is worth $US4 billion ($4.46 billion) according to Forbes, was asked how he thought a person on minimum wage would be able to emulate the richest people in society.
He said lots of people have come from nowhere and become part of the 1 per cent.
"The stories are rampant of people who started with a candy store and took it from there," he said.
"There are lots of people who have the ambition and have the motivation and have succeeded."
Mr Zell was also asked to comment on billionaire venture capitalist Tom Perkins' recent controversial comment that the criticism of America's rich was comparable to the persecution of Jews in Nazi Germany in the 1930s.
"The word persecution is not the right word," he said.
"I think that the politics of envy, the politics of class warfare are what has separated America from many parts of the rest of the world. And we have benefited dramatically from not having class warfare, from not having envy."
Earlier in the interview Mr Zell spoke about things that have contributed to his success, including his tendency to act rather than overthink.
"It's all about what's simple. What's the shortest distance between two points. People tend to overthink," he added.
"There are no formulas. Success and failure are a combination of judgments and external events. But it starts and ends with a simple idea."
He also said he followed his gut.
"I think that I have been willing to have opinions and then execute accordingly," he said.

source"news.com

Wolfers: The slow jobs growth in USA is "bad news"

The US job creation engine sputtered for the second straight month in January, raising fresh questions about the economy's momentum.
The Labour Department reported Friday that the economy pumped out a net 113,000 new jobs in January, far fewer than the 175,000 that economists had forecast and even farther off the monthly average for last year of 194,000.
While hiring was strong in construction and professional services, retailers and government authorities at all levels shed significant numbers of workers, the department's survey of business establishments showed.
It came on the heels of January's 75,000 net hirings, which analysts had hoped was a seasonal fluke explained by severe weather conditions in much of the country.
The newest data suggested weather was not a significant factor in January.
"Folks, this isn't good news,'' said Brookings Institution economist Justin Wolfers.
"Today's data suggest recent trends of good-but-not-great jobs growth is continuing. But they warn us to be wary of a slowdown.''
The monthly report carried a tentative silver lining.
The department's separate survey of households showed a surge in people returning to the workforce and getting jobs: 638,000 more people had work last month over December.
That pulled the overall unemployment rate down to 6.6 per cent from 6.7 per cent in December and 7.9 per cent a year ago.
And the labor force participation rate rose to 63.0 per cent, though that remains extremely low on historical standards.
The same data showed a decrease in the number of people forced to take part-time jobs because of the economy's weakness, and a fall in the number of those unemployed for more than 27 weeks.
While economists give less weight to the household survey as an indication of the economy's strength, they said it moderated the low job creation numbers from the establishment poll.
A real gain of 638,000 jobs in January "didn't really happen,'' said Ian Shepherdson of Pantheon Macroeconomics.
"But the trend in unemployment is down,'' he said.
The data raised questions about whether the Federal Reserve will, or should, continue its two month-old operation to cut back its huge bond-buying stimulus program.
Based largely on the view that the economy was growing steadily and the jobs market was firming, the Fed sliced US$10 billion from the monthly operation in January and is cutting another $10 billion this month, bringing it to US$65 billion.
While some analysts say the January data could give them reason to pause, Fed policy makers do not meet again until March, when they will also have February's data under their belts.
Chris Williamson of Markit said Fed policy makers are likely to note the "erratic nature'' of the data and still see the longer-term trend as a steady rise in hiring.
"A further taper under new Chair (Janet) Yellen still looks the most likely option, though the certainty of the decision has surely fallen with these numbers,'' he said.

Source: news.com