Federal Reserve
What is the Federal Reserve $Central Bank of the United States $Created by Congress with the passage of the Federal Reserve Act in 1913 $Consists of: $Board of Governors--central, governmental agency $Located in Washington, DC $Twelve regional Federal Reserve Banks $Located in major US cities $Chartered to provide the nation with a safer, more flexible, and more stable monetary and financial system
Board of Governors $The seven members of the Board of Governors of the Federal Reserve System are nominated by the President of the United States and confirmed by the U.S. Senate. –One term begins every two years on February 1 of even-numbered years $The Chairman and the Vice Chairman of the Board are chosen by the President from among the sitting Governors and are confirmed by the Senate. –They serve a term of four years and may be reappointed
Current Board Members $Ben S Bernanke, Chairman $Janet Yellen, Vice Chair $Kevin Warsh $Elizabeth Duke $Daniel Tarullo $Sarah Bloom $? (Only show 6 on Website)
Twelve Regional Banks Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Connecticut, Maine, Massachusette, New Hamshire, Rhode Island, Vermont Locations determined by the geographic distribution of the US population in 1913
Four General Duties $Conducting the nations monetary policy by influencing the money and credit conditions in the economy in pursuit of full employment and stable prices $Raise and lower interest rates to promote consumer spending, investing, and spending
Four General Duties $Supervising and regulating banking institutions to ensure the safety and soundness of the nations banking and financial system and to protect the credit rights of consumers
Four General Duties $Maintain the stability of the financial system and containing systemic risk that may arise in financial markets
Four General Duties $Providing certain financial services to the US Govt., to the public, to financial institutions, and to foreign official institutions, including playing a major role in operating the nations payment system
Set Monetary Policy $The Federal Reserve conducts monetary policy using three major tools: –(1) Open market operations - the buying and selling of U.S. Treasury and federal agency securities in the open market –(2) Discount rate - the interest rate charged depository institutions on loans from their Federal Reserve Bank's lending facility (the discount window) –(3) Reserve requirements - requirements regarding the amount of funds that depository institutions must hold in reserve against deposits made by their customers.
Monetary Policy Tools $Using these tools, the Federal Reserve: $Influences the demand for and supply of balances that depository institutions hold on deposit at Federal Reserve Banks (the key component of reserves) $Influences the federal funds rate--the rate at which depository institutions trade balances at the Federal Reserve. $Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services.
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