The Federal Reserve System (FRS) is the central bank of the United States. It was created in December 1913 as an organ for preventing systematic crises. Gradually, his 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 monetary policy. Thus, the following answer is absolutely true to the question of what the Fed is: it is a body in the United States that regulates the amount of money in circulation by establishing the required reserve ratio, refinancing rate and open market operations. The Federal Reserve is in charge of managing inflation and maintaining price stability. The US Federal Reserve also strives to achieve maximum employment. The main function of this body is the sustainable economic development of the country. What it is? The Fed envisages GDP growth of 2-3% per year. However, the purpose of the Federal Reserve System is not limited to this. The Fed meeting may relate to the regulation of commercial banks to protect consumer rights. The discussion may also 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
The consideration of the question of what the Fed is would not be complete without studying the components of this body. There are three of them. The Board of Governors is the main organ. He manages monetary policy. The Fed Governing Council has seven members. They are responsible for setting the discount rate and reserve standards for member banks. Any decision by the Fed is based on an analysis conducted by its employees. Every month, all conclusions are published in the so-called Beige Book, and a Congressional Monetary Report is published every six months. Another component is the Federal Open Market Committee (FOMC). Its task is to establish a target rate on 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 oversee commercial financial institutions and monitor the implementation of selected monetary policies. Each of the 12 member banks is in its district.
History of Origin
The first attempts to create a more flexible monetary system in the United States were made back in the 18th century. The First and Second Bank were established in 1791 and 1816, respectively. Each of them lasted about 20 years. Both the First and Second Bank had branches throughout the country and served the government, monetary institutions and private clients. In general, their activities were satisfactory. However, a significant part of the population did not have any confidence in them. The decline in their authority was due to the exacerbation of political contradictions, so they closed. The 1907 panic prompted Congress to create a Federal Reserve. A National Monetary Commission was established to evaluate methods to prevent ongoing financial panic and bankruptcy of enterprises. In 1913, Congress passed the Federal Reserve Act. It was originally planned that the Fed would have much less authority than we see now. She had to deal with the support of the creation of member banks, increasing the elasticity of the currency and the effectiveness 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 government 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 research by the Fed. They are not ratified by the president, the Ministry of Finance, and Congress. That is, they are independent. However, members of the Governing Council are elected by the president and approved by Congress. Thus, the state controls the long-term policy of the Federal Reserve System. Some officials are so suspicious of the latter that they see the need for a complete cessation of its activities. Senator Rand Paul believes that the audit of the system should be carried out more carefully.
Chair role
The head of the Fed sets the direction of monetary policy. From 2014 to 2018, the chair is Janet Yellen. She focused on overcoming unemployment, which was her scientific specialty. Therefore, it reduces interest rates. Many experts believe that its actions only exacerbate the crisis, and the economy needs the opposite measures to stabilize. From 2006 to 2014, Ben Bernanke was the chairman . He was an expert on the role of the Fed during the Great Depression. Thanks to Bernanke, it was possible to mitigate the effects of the recent recession.