A view from inside central banks

Anna Cieslak spends a lot of time interacting with people who make monetary policy. Working with institutions like the Bank for International Settlements, the central bank for central banks, she has insight on how central banks influence the economy - and in turn what influences central banks. Anna’s forecast for prospective students? Now may be a very good time to invest in your education.

Dean Bill Boulding interviews Anna Cieslak on Instagram

Anna Cieslak, Associate Professor of Finance

“Let me give you a little bit of flavor of what is the Fed’s philosophy behind what they are doing. Through my research, what we have found is that the Fed does very significantly influence financial markets. But they also respond to financial markets in a big way. They are definitely focused on the impact that financial conditions and the stock market in particular have on the economy. There are two reasons why the Fed would be responding, or what looks like a response to the stock market and other financial conditions. One is using the stock market as an early on leading indicator about what is going on in the economy. And much more importantly, the effect of the stock market and financial conditions on consumption.”


“The Fed thinks that significant downturns, declines in the value of financial assets, will make people spend less. People feel poor, they curtail their spending. Demand goes down and the economy weakens. The Fed wants to counter this kind of effect. This is the logic that we have seen since starting from the mid 90s to be very pronounced in the way the Fed conducts policy. And this is something we have also seen during the COVID-19 crisis.”


“In early March, we have observed dramatic declines in the stock market. And we also saw a very rapid response by the Fed. In a series of unprecedented moves, the Fed cut interest rates down to zero again. And the reason they were doing it, the argument they provided, is to provide a boost to confidence, to consumer confidence, and to investor confidence. Now what does it mean in finance language to provide a boost to confidence? It means to reduce risk premium. Reduce risk aversion. Or, in other words, increase risk appetite, a willingness to take risks by investors and encourage consumers to spend. We have found that the biggest effect of Federal Reserve policies are on the risk taking behavior of people.”


“You may wonder, why has the stock market declined so much, and why has it rebounded in such a short amount of time. The decline in people’s growth expectations, people downgrading their outlook, accounted for perhaps, at the maximum, 10 percent of the downturn in the stock market. The remainder, which is twice as strong a decline, was because of enormous uncertainty. Uncertainty means people are becoming really risk averse. They don’t want to hold risky assets. They sell. And what it means in terms of real economy, now raising capital becomes really expensive for entrepreneurs and firms. Uncertainty has been the key element in the decline.”


“What the Fed has done, through a variety of interventions, is to reestablish confidence. The effect of interest rate tax has been significant. But the dominant effect has been the confidence effect. The Fed in recent weeks has introduced an enormous stimulus. Monetary stimulus and credit stimulus. A lot of the interventions that they have done were ready to go from the 2008 playbook. But the Fed has done more. The Fed is currently engaging in something they have not done before to the same degree. Intervention in private credit markets. That means, extending loans to companies and buying credit from banks, essentially. Now, what this means is not the Fed is generating gifts to anybody. The Fed does not want to lose money. And they don’t want to take on a lot of credit risk. So what has happened, using emergency powers, that are rarely bestowed on the Fed by the Treasury, they were allowed to get backing from the Treasury of about 400 billion dollars, which they can lever to extend about 400 trillion dollars’ worth of loans to the economy. That is ten times leverage. And the backing from the Treasury is going to protect the Fed against any losses that they will possibly endure because of there being a lot of credit risk. But the four trillion dollars is the stimulus that they can send to the economy. I just want to give people the sense that this intervention is enormous. We have not seen something like this happen during the financial crisis. The Fed currently has been intervening in markets at the daily level at the same magnitude as what they were doing at the monthly level during the financial crisis.”


“Based on consensus, and given that we are in a recession, it is a perfect time to invest in education. When students come for the first day of my class, they answer this question, and they have tools to quantify that answer. There are four factors that they need to take into account when making their decision. The first factor is what is the prospect for them currently, in their current jobs. And we know we are in bad economic times, which would possibly effect the growth rate going forward. So that is one argument in favor of going to business school right now. The second argument is the cost of capital, what we call opportunity cost of money. And with interest rates being historically low, this works in your favor of going to business school. It is really cheap to borrow these days, cost of capital is very low. And the third factor, what are your prospects after you exit the business school? I have no doubt that the skills that we provide at Fuqua, are such that the growth rate of your salaries after exit is much higher than it was before. And you are going to be entering into an economy that is probably going to be much more innovation-focused than it is today. Innovation rebounds, becomes stronger. This will contribute to post crisis growth rates in salaries and earnings. So you have all the factors that currently work in favor for you to go to business school in my view.”

Quick Facts

Area: Finance

Elective Course: Global Financial Management

Researches: Asset pricing, yield curve modeling, monetary policy, macro-finance, financial econometrics

Street Cred:

Member of the National Bureau of Economic Research Monetary Economics and Asset Pricing Program


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