What is the Fed? Is it the US central bank or "secret society"

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:43

The Federal Reserve System (FRS) is the central bank of the United States. It was created in December 1913 as a body to prevent systematic crises. Gradually, its functions and powers were significantly expanded. But what is the Fed? Is it a "secret society" or just another central bank, albeit the richest country in the world?

Main Functions

The main purpose of the Fed is to conduct monetary policy. Thus, the following answer to the question of what is the Fed is absolutely correct: it is a body in the United States that regulates the amount of money in circulation by setting the required reserve ratio, the refinancing rate and open market operations. The Federal Reserve is in charge of controlling inflation and maintaining price stability. Also, the US Federal Reserve seeks to achieve a maximum level of employment. The main function of this body is the sustainable economic development of the country. What it is? The Fed provides for GDP growth of 2-3% per year. However, this appointment of the Feder althe backup system is not limited. The Fed meeting may touch on the topic of regulation of commercial banks to protect consumer rights. Also, the discussion may be related to maintaining the stability of financial markets and preventing potential crises. Moreover, the Fed provides services to the US government, federal and foreign banks.

Structure

Consideration of the question of what it is - the Fed, would not be complete without studying the components of this body. There are three in total. The Board of Governors is the main body. It manages monetary policy. The Fed's Board of Governors has seven members. They are responsible for setting the discount rate and reserve requirements for member banks. Any Fed decision is based on an analysis carried out by its staff. Every month, all conclusions are published in the so-called "Beige Book", every six months the Monetary Report of the Congress is published. Another component is the Federal Open Market Committee (FOMC). Its task is to set the target rate for funds. The Federal Committee includes members of the Board of Governors and 4 of the 12 presidents of member banks. This body meets eight times a year. Another component of the Fed is the member banks themselves. They supervise commercial financial institutions and monitor the implementation of the chosen monetary policy. Each of the 12 member banks is in its own district.

History of origin

First attempts to create a more flexible monetary system in the United Stateswere undertaken in the 18th century. The First and Second Banks were established in 1791 and 1816, respectively. Each of them lasted about 20 years. Both the First and Second Banks had branches throughout the country and served the government, monetary institutions, and private clientele. In general, their performance was satisfactory. However, a significant part of the population did not have any confidence in them. The decrease in their authority was due to the aggravation of political contradictions, so they closed. The Panic of 1907 prompted Congress to create the Federal Reserve System. The National Monetary Commission was established to evaluate methods to prevent constant financial panics and business failures. In 1913 Congress passed the Federal Reserve Act. It was originally planned that the Fed would have much less power than we see now. It was supposed to support the creation of member banks, increase the elasticity of the currency and the efficiency of the entire system as a whole. However, gradually the range of powers of the body in question has expanded significantly, which is associated with the periodic occurrence of crises requiring state intervention.

Who owns the Fed?

The Federal Reserve is an independent bank. The decisions of the FOMC and the Board of Governors are based on the research of the Fed staff. They are not ratified by the president, the Treasury or Congress. That is, they are independent. However, the members of the Board of Governors are elected by the President and confirmed by Congress. Thus, the state controlslong-term policy of the Federal Reserve System. Some officials treat the latter with such suspicion that they see the need for a complete cessation of its activities. Senator Rand Paul believes the system needs to be audited more thoroughly.

Role of Chairman

The head of the Fed sets the direction of monetary policy. Janet Yellen is the chair from 2014 to 2018. She focused her attention on overcoming unemployment, which was her scientific speci alty. So it lowers interest rates. Many experts believe that its actions only exacerbate the crisis, and the economy needs the opposite measures to stabilize. Ben Bernanke was the chairman from 2006 to 2014. He was an expert on the role of the Fed during the Great Depression. It was thanks to Bernanke that the effects of the recent recession were mitigated.