Decrypting the Federal Reserve: How Does the Central Bank's Game of Power Really Work? [Hu Jie Masterclass Introduction]

There's no need to overstate the importance of the Federal Reserve—all the world's financial institutions and markets are watching closely.

Although in theory, it's just a central bank of one country—almost every major economy has its own central bank, and their operating principles for now are largely similar—in practice, it holds the most significant position among all central banks globally. Every move it makes impacts not only the U.S. economy and financial markets, but also the economies and financial markets around the world.

So in this course, by sharing how the Federal Reserve operates, first we aim to understand what a central bank's job looks like, including how other countries' central banks work; and second, to offer some practical help—following the Federal Reserve is crucial for future investment and economic activities.

There's also a relatively minor goal: There are many myths about the Federal Reserve circulating, most of which are unreliable. Today’s session will systematically introduce the operational principles of the Federal Reserve. With this foundation, you'll be able to clearly identify whether what's said in these myths is accurate, and even which aspect of the Fed’s operations they’re talking about. Otherwise, it’s very easy to misunderstand the reasoning behind a series of Federal Reserve moves.

"The Evolution of the Federal Reserve—Decrypting the Central Bank’s Game of Power," borrows from the term "Game of Thrones," which adds a compelling dynamic. In essence, it tells how the Fed functions as a modern central bank. This Masterclass is divided into two parts:

The first part introduces the entire financial system, and naturally will also explain the role of the central bank within the financial system. The central bank is indeed part of the financial system—a very important part. With a comprehensive understanding of the system, we lay a solid logical foundation for understanding the central bank’s work.

Here’s an aside. What exactly does the financial system look like? In fact, many graduates of finance programs, even after years of working, never have a complete picture, which is quite unfortunate. Finance is a field everyone seemingly encounters on a daily basis—banks, funds, insurance; everyone can name a few.

But if I ask: What is finance? What is the financial system? Very few can explain its essence in a simple, concise way. When someone truly understands a concept, they can articulate it simply—they could explain finance and the financial system to their grandma at the dinner table and make it clear.

So in the first part, we start with finance and the financial system, with a special focus on central banks. On this basis, in the second part, we delve into the Federal Reserve, especially its possible direction after the recent leadership change. By observing and analyzing this event, we gain more direct insight into the work details of central banks.

The main goal of the first part is to introduce the financial system, especially the central bank. It’s split into four sections: first, the foundational concepts of finance and the broad blueprint of the financial system; second, highlighting the central bank’s core function—money creation; third, dissecting the work details of central banks; and fourth, three recent stories directly related to the Federal Reserve, using these to further illustrate aspects of central bank operations.

— The above is the course introduction. In the full lecture that follows, Professor Hu Jie from the Shanghai Advanced Institute of Finance at Shanghai Jiao Tong University, and former Senior Economist at the Federal Reserve, will start with the most fundamental question of all, "What is finance?", debunk the dual "money-making mechanisms" of central and commercial banks, reconstruct the Federal Reserve’s interest rate decision-making process from an insider’s perspective, and finally address the current hot topic: Will the Fed's working paradigm change again with the new chairman Walsh, and will the 17-year bull market in U.S. stocks lose its support as a result?