Until the recent increase in inflation, the Fed was usually only spoken about in the context of interest rates.
Do you know what the Federal Reserve Bank is, what it does and how it’s structured?
The Federal Reserve Bank is the central bank of the United States of America. It was created in 1913 when Congress passed the Federal Reserve Act of 1913.
What is a central bank? A central bank is defined by Investopedia as “A financial institution given privileged control over the production and distribution of money and credit for a nation or group of nations.”
The Federal Reserve Bank, often referred to as “the Fed,” has five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest.
The Federal Reserve performs these functions:
- conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
- promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;
- promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;
- fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and
- promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.
There are twelve districts, each with a separately incorporated Reserve Bank. District boundaries were based on prevailing trade regions that existed in 1913 and related economic considerations, so they aren’t divided along state lines.
Congress oversees the Federal Reserve System and its entities.
There are three important Fed entities: The Federal Reserve Board of Governors (Board of Governors), the Federal Reserve Banks (Reserve Banks), and the Federal Open Market Committee (FOMC) make decisions that help promote the health of the U.S. economy and the stability of the U.S. financial system.
Federal Reserve Banks also have their own advisory committees, including agricultural, small business, and labor matters. The Federal Reserve Board solicits the views of each of these committees biannually.
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