Us Federal Reserve

In: Other Topics

Submitted By ng7nicoya
Words 396
Pages 2
What is the U.S. Federal Reserve System?

Known as the “the Fed” or “Federal Reserve”
Created in 1913 by the Congress
Serves as the U.S. central bank
Provides a secure, more stable, & flexible monetary and financial system
Supervises/regulates banking institutions
Structure of the Fed

Two-part structure: - Board of Governors - Network with 12
Federal Reserve Banks
Board of Governors and presidents of the Reserve Banks make monetary policy
Board of Governors
Government agency overlooks the Fed
Located in Washington
Seven-member Board appointed by the President and Senate serving 14-year terms appointed for long terms
Shielded from political pressures

Presidents of Reserve Banks
12 regional Federal Reserve Banks
Also known as “district banks
Nongovernmental organizations, with the publics interest on mind
In San Francisco, Boston, New York, Philadelphia, Richmond, Atlanta, Cleveland, Kansas City, Dallas, Minneapolis, St. Louis, and Chicago
Each of their branches have a board of directors
Factors influencing discount rate
Discount rate: interest rate charged to commercial banks/depository institutions on loans received from the Fed
Factors: printing and lending it out money, consumer savings goes down, government borrows money the demand will go up and the interest rate will increase
Supply ↑ then interest rates ↓
Demand ↑ then interest rates ↑
How does the discount rate affect the decisions of banks in setting their specific interest rates?

Higher discount rates = high interest rates

Lower discount rates = low interest rates
How does monetary policy aim to avoid inflation?

Maximize sustainable output and employment and maintain stable prices
Target key interest rates
Lower federal funds rate
Aims at 2% inflation
How does monetary policy control the money supply?

The Fed set the level of…...

Similar Documents

The Federal Reserve

...How the Federal Reserve Operates ECO/372 October 22, 2012 The Federal Reserve The Federal Reserve has three main tools it uses in order to control the money supply. One of the first tools they use is the open market operations. Open market operations consist of selling and purchasing of government bonds to the public and commercial banks. These operations are the most important of the tools the Reserve can use that influences the money supply. The second tool that is used by the Federal Reserve is called adjustment of the reserve ratio. The Reserve ratio is a ratio of required reserves that the banks has to keep in their own outstanding checkable deposit liabilities (Brue, 2004, p. 254) by lowering and raising the ratio, the reserve can take control of how much the banks can lend. The final tool the FDR uses is to adjust the discount rate. The discount rate is the interest rate that the FDR charges banks for a loan (Brue, 2004, p. 274). There are factors that help the Federal Reserve to decide whether or not to adjust the discount rate. Three of these factors are the GDP, The unemployment rate, and the rate of inflation. Each one of these is affected in various ways by changes in the money supply. When the money supply increases, the Real GDP increases also. When there is more money in the investments, the economy and the consumer demands rise, this tends to lead to increased Real GDP and an increase in the Real GDP leads to an increase in inflation......

Words: 788 - Pages: 4

Federal Reserve

...Kwajelin This week in week three we touched basis on the banks and money and what they parts the play to us in society. As for me this week was not as confusing as weeks one and two was. I say this probably because I was able to sit down and look at the assignments and think about them ahead of time. Talking about the Fed’s increase rates and the Fed’s decrease rates I wanted to engage in more of my interest because, it can be related to the stimulus plan that the government is discussing now. The stimulus plan is to help the economy in rebuilding the economy by helping with control spending within the government and lowering the taxes. I had a struggle with at first the two Fed net selling and Fed net buying. I had never heard of them before so it more interesting and a struggle to see how I could apply them to my personal life. As for week three it was interesting and ready to blast into week four. Brigett This week we covered some very important and complex topics. We started off by defining the uses of money and the ways that money is created by banks. We looked at the monetary policies; how they work, what they affect, and how they are affected by different actions. We discussed the roles of the Federal Bank, the reserves, and the fed funds rates. The most interesting topic for me was the increasing and decreasing of interest rates and how such as simple act can affect our economy, and ultimately, our decisions as consumers. I cannot honestly say how these topics......

Words: 594 - Pages: 3

The Federal Reserve

...The Federal Reserve ECO/372 What is the Federal Reserve? _ The U.S. central bank whose liabilities serve as cash to the United States. ◦_ Six explicit functions. _ Composed of 12 regional banks _ Ran by the Board of Governors ◦_ Seven members. _ Federal Open Market Committee ◦_ The Fed’s chief body that decides monetary policy . Duties of the Federal Reserve • Conducting monetary policy (influencing the supply of money and credit in the economy). • Supervising and regulating financial institutions. • Serving as a lender of last resort to financial institutions. • Providing banking services to the U.S. government. • Issuing coin and currency. • Providing financial services (such as check clearing) to commercial banks, savings and loan associations, savings banks, and credit unions. Monetary Policy _ Policy of influencing the economy through changes in the banking system’s reserves that influence the money supply and credit availability in the economy. _ Three Tools ◦_ Open Market Operations ◦_ Discount Rate ◦_ Reserve Requirements _ Types of monetary policies ◦_ Expansionary ◦_ Contractionary Open Market Operations _ The Feds buying and selling of government securities. _ To expand the money supply, the Fed buys bonds. _ To contract the money supply, the Fed sells bonds. The Reserve Requirement _ The percentage the Federal Reserve Bank sets as the minimum amount of......

Words: 390 - Pages: 2

Federal Reserve

... The Federal Reserve’s duties are to maintain the stability of the financial system, supervise and regulate banking institutions, conduct monetary policy and provide financial services to the government, such as operating the nation’s payments system. The establishment of the Federal Reserve System and how it conducts monetary policy, through interest rate variance, reserve requirement, money supply and several other programs, is fundamental to understanding the economy as a whole. The Federal Reserve Act, also known as the Glass-Owen Bill, was passed December 23, 1913 under President Woodrow Wilson ( The Federal Reserve was born from the National Monetary Commission which proposed that the country needed an institution to deal with a poorly regulated banking system that was responsible for economic downturns ( The original 1913 bill stated that the original act was “to have succession for a period of twenty years” and yet there have only been minor adjustments to the bill since that time ( Federal Reserve is comprised of 3 divisions: the Board of Governors (BOG), the Regional Reserve Banks, and The Federal Open Market Committee (FOMC). The BOG guides the Federal Reserve’s policy actions, studies trends in the economy, and helps forecast the economic future, In addition, the BOG also participates in monetary policy-making on the FOMC, and is responsible for bank regulations and overseeing the operations of the Reserve Banks......

Words: 1870 - Pages: 8

The Federal Reserve

...The Federal Reserve Term Paper The Federal Reserve After several periods of economic and banking problems, the United States of America was searching for a fix. In December of 1913, the American Congress approved the Federal Reserve, which President Woodrow Wilson signed into law. By 16 November 1914, a working Federal Reserve was set up in 12 cities chosen as regional Reserve Bank sites. These reserve banks were privately owned banks. The Federal Reserve wielded unprecedented power, which was noticed during the beginning of World War I (WW-I) when the Federal Reserve set interest rates for American banks and helped finance Europe’s war efforts until 1917, when the U.S. declared war on Germany and financing America’s war efforts became paramount (Education, 2013). “I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small dominate men.” Woodrow Wilson (History of the Federal Reserve, 2013). As you can decipher from President Woodrow Wilson’s quote about the Federal......

Words: 3118 - Pages: 13

Federal Reserve accelerated rapidly as the war progress. Eventually, people lost faith in the notes and they quickly became worthless. This would lead to three failed attempts to decentralized US Banking in an effort to restore trust and avoid economic disaster, after the failed attempts, The Federal Reserve Act was established in 1913 by Congress. This, at the time secured and stabilized the nation’s economy. From December 1912 to December 1913, the proposal underwent heated debates, a lot compromising, molding, and reshaping.  By December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law. This was the first accepted decentralized central bank that balanced the competing interests of private banks and populist sentiment.  The Federal Reserve or the “Feds” has the authority to make bank loans and back the notes printed. The purpose of the Federal Reserve System is to regulate banks and to manage the amount of money that is accessible within the economy. The Feds uses two of its tools to accomplish this, one, it can change the interest rates on the money it lends to banks. A higher interest rate makes money more expensive, thus discouraging banks to lend. Lowering interest rates causes the opposite effect. Two, they have the authority to change reserve requirements. A reserve requirement is the percentage banks must keep in their vaults of their total loan portfolio. Obviously, if the Fed lowers this requirement, the banks can increase their leverage......

Words: 3835 - Pages: 16

The Federal Reserve

...The Federal Reserve The Federal Reserve controls the reserves by buying and selling securities. If the Federal Reserve buys securities it has to pay the primary dealer’s bank whatever amount they agreed upon, which increases the reserve limit. However when the Federal Reserve sells securities the primary dealer’s bank pays the amount agreed upon, which in turn decreases the reserve. This process is known as open marketing. “Open marketing referees to the fact that the Federal Reserve doesn’t decide on its own which securities dealers to do business with on a particular day.”(Federal Reserve Education, 2013) Security dealers, primary dealers, makes bids or offers on each security and the Federal Reserve then choices the one with the best offer for its purpose. Security dealers, primary dealers, are skimpily the banks and financial institutions of the United States of America. The reserve is the amount of money that each bank or financial institution is to keep in its vault at all times. However the amount of the reserve can change daily depending on the selling and buying of the Federal Reserve. The reserve also determines how much money the bank or financial institution can loan to the economy thru a process called the multiplier effect. “The multiplier effect is the expansion of a country's money supply that results from banks being able to lend.”(Investopedia US, 2013) An example of the multiplier effect would be if my bank had a reserve requirement of 10% of every...

Words: 511 - Pages: 3

Federal Reserve

...To Foreign officials, The Federal Reserve Bank is the Central banking system of the United States of America. There are 12 Federal Reserve Banks in different districts throughout the U.S. The main focus of the Federal Reserve is to control the money supply, interest rates, and constantly supervise the overall banking systems ("Board Of Governors Of The Federal Reserve System," November 6, 2009). The Federal Reserve System was founded by congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Our duties and responsibilities are reflected through our mission statement and can be divided into four main categories: General areas of expertise We influence monetary and credit conditions in the economy in our quest for maximum employment, stable prices, and moderate long-term interest rates ("Board Of Governors Of The Federal Reserve System," November 6, 2009). We protect the credit rights of all the consumers in the economy. We Oversee and regulate banking institutions to guarantee the safety and soundness of the country's banking and financial system ("Board Of Governors Of The Federal Reserve System," November 6, 2009). We uphold the constancy of the entire financial system and contain systemic risks that may arise in all financial markets ("Board Of Governors Of The Federal Reserve System," November 6, 2009). We provide financial services to depository institutions, the U.S. government, and......

Words: 733 - Pages: 3

The Federal Reserve

...The Federal Reserve David Shifflet ECO 561 December 2, 2013 Ted Nordin The Federal Reserve The Federal Reserve System, which some refer to as the Fed, will celebrate its 100th birthday just before Christmas this year. It was created by the Congress of the United States to provide the nation with a safer, more stable currency and economy. The Fed’s responsibilities have been further defined to include: * Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices. * Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers. * Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. * Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems. (Board of Governors of the Federal Reserve System, 2013) The Fed uses several tools to accomplish these responsibilities including: * Open Market Operations – The purchase and sale of securities in the open market by a central bank – Used to adjust the supply of reserve balances so as to keep the federal funds rate--the interest rate at which depository institutions lend......

Words: 1021 - Pages: 5

Federal Reserve

...1. How does the Federal Reserve System control the money supply? The monetary base is related to the size of the Fed’s balance sheet; specifically, it is currency in circulation plus the deposit balances that depository institutions hold with the Federal Reserve. The Fed has essentially complete control over the size of the monetary base. The primary way the Fed controls the monetary base is through open market operations: buying or selling securities. To increase the monetary base, the Fed buys securities from any party and pays with a check. That check, written on the Fed, is deposited by a bank in its account with the Fed, thereby adding to its reserves and increasing the monetary base. The same process works for decreasing the monetary base: The Fed sells securities, getting a check from a bank in exchange. When the check is deposited, the bank’s balance at the Fed decreases The total supply of money consists of currency held by the public and checkable deposits balances of banks and other depository institutions. The money supply and the monetary base are linked by reserves, i.e., vault cash and deposit balances held at Federal Reserve banks While the Fed’s control over the size of the monetary base is complete, its control over the money supply is not. One major reason for this is banks can choose to hold the additional base money (i.e., deposit balances with the Federal Reserve banks) supplied by the Fed as excess reserves. 2. Why is the Fed sometimes......

Words: 333 - Pages: 2

Federal Reserve

...The Federal Reserve can change interest rates on the money it lends to banks. When it’s a higher interest rate it makes money more expensive. The low interest rate would be opposite; banks won’t want to borrow money if the interest is higher. The other thing the reserves have is the power to change the reserve requirements. A percentage requirement is the percentage the banks must keep on the vaults of their total loan portfolio. Every Bank has that percentage requirement and they need to follow. Outline the stated direction of recent monetary policy in the United States. The monetary policy concerns the actions of central bank or other regulatory authorities. They determine how much growth of the money supply. The direction monetary policy is going right now is they are getting calls to get more money so the Unites States can help more people get jobs and help people not lose their homes. They are trying to make more money and see if other banks are getting good about of money to loan out and see how much money they are getting. List at least one policy action that the Federal Reserve has taken to confirm that direction. The Federal Reserve action is to influence movement of the supply and interest rate to affect output and inflation. They need to get faster growth of money supply and initially lower short term interest rates to attempt increasing aggregate demand, but it may lead to higher rate inflation. The direction the Federal Reserve has taken is getting the US......

Words: 715 - Pages: 3

The Federal Reserve

...The Federal Reserve University of Phoenix The Federal Reserve The Federal Reserve System is the central bank of the United States. The purpose of the Fed is to control the United States economy by implementing policies to regulate interest rates and the money supply. To understand better how the Fed system works, we have to understand the purpose of money and its function, and explained how the central bank manages the monetary system. Summarize the stated direction of recent monetary policy to realize why the fed makes such decisions as well as list at least one policy that the Fed took to confirm that direction, and as a final point explain the impact of monetary policies on economic production and employment. “Money is the set of assets in the economy that people use to buy goods and services from other people” (Mankiw,). Money includes currency, paper bills, coins, and any of those accepted by sellers in exchange of goods or services. Money has three main functions. The first function is as medium of exchange, buyer use money in exchange for goods or services. Second, money as a unit of account, people use it to post prices and record debts. Finally, money as a store of value, people can use money to transfer purchasing power from the present to the future. Money is administered by the government through the Federal Reserve who acts as the central bank of the nation’s monetary system. The central bank is an institution designed to supervise the banking system,......

Words: 1057 - Pages: 5

Federal Reserve

...Abstract The signing of the Federal Reserve act by Pres. Woodrow Wilson on December 23, 1913 was the event in which the US Government essentially gave control of our country to large banks. With this law, Congress established a central banking system which would control the issuance of money. Since its creation there has been a debate as to whether or not the Federal Reserve Bank has too much power. The misconception is that the Federal Reserve Bank is a branch of the Federal Government in which it is not. America today is at the mercy of a privately owned central bank whose power is left unchecked which has inevitably led to corruption over its citizens and elected officials. Most Americans feel that the United States of America is democratic a leader of the “free” world. This is a well known assumption in theory. Our founding fathers had every intention in turning the new world into a developed democracy, and avoid any authority or one-party power. Our constitution demands that our government be “of, for and by the people,” to be divided into complex units and checks and balances, which are designed to prevent any potential power struggle by one specific branch. The constitution of the United States of America is the perfect blueprint for democracy in the purest form, with power and control in the hands of its citizens. Today, this is not the case. We gave up the right to print our own currency in 1913. The US Government gave the powers to a select few, who have......

Words: 2028 - Pages: 9

Federal Reserve

...Federal Reserve The FOMC (Federal Open Market Committee) is the monetary policy making body of the Federal Reserve System. The committee consists of twelve members; that are the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve a one year term on a rotating basis. The committee is responsible to formatting a monetary policy to help promote the economic growth, employment, stable prices, along with international trade and payments. The Fed tries to control the inflation by raising or lowering the interest rates and control the money supply. They try to estimate how the economy is going to be doing in the present moment and in the future. The Fed then compare the goals for the economy and inflation. If there seem to be a gap between the estimates and the goals the Fed then have to act swiftly to close the gap between the two. The Fed takes a look at the governments taxing and spending policies, the financial conditions at home and abroad to determine what will be the next step. The Fed buys up all of the government debt instruments to make an expansionary monetary policy. When the sale of the debt instruments are being sold this make a contradictory monetary policy. The Fed is also working on the fiscal policy as well to help the growth of the economy. The Fed is also working on the price stability for the monetary policy. By......

Words: 677 - Pages: 3

Federal Reserve

...fedrThe Federal Reserve Policy from 1999 to the Present: The monetary policy of the United States has two basic goals that are outlined in a 1977 amendment to the Federal Reserve Act. These basic goals are: to promote "maximum" sustainable output and employment while promoting "stable" pricing [1]. It has become the responsibility of the Federal Reserve Board to try in: • Maintaining the stability of financial systems and contain risk that may arise in financial markets. • Regulating banking to ensure safety and soundness protecting the consumer from harm while using credit and banking services. • Overseeing the nation's payment systems providing financial services to financial institutions, the U.S. government, and foreign institutions. • Stabilizing world pricing and creation sustainable employment. While the Federal Reserve Board is in a constant challenge to perform these above tasks. The economy goes through business cycles where the output of goods and services and the employment rate of the country are above or below their long – running levels. The term "monetary policy" refers to what the nation's central bank or Federal Reserve happens to administer so that they may influence the amount of money and credit in the U.S. economy. What happens to this money or the credit during this time will directly affect the interest rates and the performance of the U.S. economy and its people. Stabilizing the U.S. economy has become paramount for the Federal Open......

Words: 1749 - Pages: 7