Fed

The Federal Reserve System, commonly referred to as the Fed, is the central bank of the United States. Created by the Federal Reserve Act of 1913, it serves as the country’s main monetary authority, with a mandate to promote maximum employment, stable prices, and moderate long-term interest rates. The Fed operates with independence within the government, aiming to shield monetary policy from short-term political pressures while remaining accountable to Congress and the public.

The system comprises two key components: the Board of Governors and the twelve regional Federal Reserve Banks. The Board, based in Washington, D.C., has seven members appointed by the President and confirmed by the Senate. The regional banks carry out tasks in their respective districts and help implement policy. The Federal Open Market Committee (FOMC), which includes the Board members and five of the regional bank presidents, sets monetary policy, focusing on the target range for the federal funds rate and other measures to influence liquidity and economic activity.

Its core functions include conducting monetary policy, supervising and regulating banks, maintaining financial stability, and operating the nation’s payments systems. The Fed uses tools such as open market operations (buying and selling U.S. government securities), the federal funds rate target, the discount rate for borrowing from the Fed, reserve requirements for banks, and interest paid on excess reserves to influence borrowing costs and liquidity.

The Fed’s actions affect the broader economy, financial markets, and the stability of the financial system. It raises and lowers policy gradually, communicates its outlook through statements and reports, and is subject to congressional oversight. Critics point to concerns about transparency and accountability, while supporters emphasize the need for insulation to manage monetary policy effectively. The Fed remains a central element of U.S. economic policy and financial infrastructure.