The Federal Reserve
The Federal Reserve Board ("the Fed") is the overseer of the banking system in the United States. The Fed was created in 1913 by the enactment of the Federal Reserve Act. Woodrow Wilson was president at the time. The Fed is run by a Board of Governors (not be confused with state governors). The current Chairman of the Board is Ben Bernake (since February, 2006).
What does the Federal Reserve Board do? The main function is to manage monetary policy. The Fed makes decisions about interest rates. In particular the Fed determines the optimum Federal Funds rate, which is the interest rate banks charge other banks for overnight loans. Banks have reserve requirements and fill them by borrowing from each other. Although this activity is simply between banks, there is a trickle down effect of what banks will charge non-bank concerns: businesses and individuals for loans. When a lowered Federal Funds rate in turn has banks offering commercial and personal loans at lower rates, economic activity picks up. Raising rates will do the opposite - banks charge more for loans, less loans are made, and economic activity slows down (thereby cooling down an inflationary economy).
The Fed's Open Market Committee is the body that makes the decisions on interest rates. The Committee meets eight times per year, and legally is bound to meet at least four times per year. The Federal Open Market Committee also operates the buying and selling of government securities, such as T-Bills. The management of treasury sales and payment on the obligations of such is the basis of monetary policy. There are twelve regional Federal Reserve Banks that oversee the compliance of bank reserves in their region. The regional Fed banks are located in Boston, New York City, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
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What does the Federal Reserve Board do? The main function is to manage monetary policy. The Fed makes decisions about interest rates. In particular the Fed determines the optimum Federal Funds rate, which is the interest rate banks charge other banks for overnight loans. Banks have reserve requirements and fill them by borrowing from each other. Although this activity is simply between banks, there is a trickle down effect of what banks will charge non-bank concerns: businesses and individuals for loans. When a lowered Federal Funds rate in turn has banks offering commercial and personal loans at lower rates, economic activity picks up. Raising rates will do the opposite - banks charge more for loans, less loans are made, and economic activity slows down (thereby cooling down an inflationary economy).
The Fed's Open Market Committee is the body that makes the decisions on interest rates. The Committee meets eight times per year, and legally is bound to meet at least four times per year. The Federal Open Market Committee also operates the buying and selling of government securities, such as T-Bills. The management of treasury sales and payment on the obligations of such is the basis of monetary policy. There are twelve regional Federal Reserve Banks that oversee the compliance of bank reserves in their region. The regional Fed banks are located in Boston, New York City, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
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