The Federal Reserve Bank

The Fed Defined

From Investopedia.com:
The Fed is the gatekeeper of the U.S. economy. It is the bank of the U.S. government and, as such, it regulates the nation’s financial institutions. The Fed watches over the world’s largest economy and is, therefore, one of the most powerful organizations on earth.

As an investor, it is essential to acquire a basic knowledge of the Federal Reserve System. The Fed dictates economic and monetary policies that have profound impacts on individuals in the U.S. and around the world.

The Fed’s Mission

The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.

Today, the Federal Reserve’s duties fall into four general areas:

· Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

· Supervising and regulating banking 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 financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system.

On December 23, 1913, the Federal Reserve System, which serves as the nation’s central bank, was created by an act of Congress. The System consists of a seven member Board of Governors with headquarters in Washington, D.C., and twelve Reserve Banks located in major cities throughout the United States.

The current Chairman of the Federal Reserve is Ben Bernanke.

What the Fed does

Each member of the Fed interviews business leaders in their regions and formulates their bias on the economy. They compile this info and send it the the Fed Chairman. The staff at the Fed compile the report, and form what’s called the “Beige Book”. The Fed members then hold a two-day meeting and vote on interest rate policy, after which they announce their decision:

· Hold interest rates as is; or

· Raise interest rates; or

· Lower interest rates.

A couple of weeks later, the minutes from this meeting and the results of the board’s votes are released to the public.