Explaining the Federal Reserve
2 min readDec 17, 2022
The Federal Reserve, also known as the “Fed,” is the central banking system of the United States. It was created by Congress in 1913 to provide the nation with a stable and flexible monetary and financial system.
The Fed is made up of three key entities:
- The Board of Governors: This is a seven-member board of appointed officials who oversee the operations of the Federal Reserve.
- The 12 Federal Reserve Banks: These are regional banks located throughout the country that carry out the day-to-day operations of the Fed.
- The Federal Open Market Committee (FOMC): This is the main policy-making body of the Fed. It is made up of the seven members of the Board of Governors and five of the 12 Federal Reserve Bank presidents.
The Fed has several key responsibilities, including:
- Implementing monetary policy: The Fed uses a variety of tools, such as setting interest rates and purchasing securities, to influence the supply and demand of money in the economy and achieve its policy goals.
- Supervising and regulating banks: The Fed is responsible for ensuring that the banking system is safe and stable and that banks are following the rules and regulations that have been put in place to protect consumers and the financial system.
- Providing financial services to the government: The Fed acts as the government’s banker and performs a variety of services for government agencies, such as issuing and redeeming government securities.
- Providing financial services to the public: The Fed provides a variety of services to the public, including operating a nationwide network of automated teller machines (ATMs) and providing check-clearing services for banks.
The Fed is an independent government agency, which means that it is not directly controlled by the President or Congress. This independence allows the Fed to make decisions based on what it believes is best for the economy, rather than being influenced by political pressures.