The Federal Reserve, also known as the Fed, is the central bank of the United States. It’s like a bank for banks, and its main purpose is to regulate the money supply and keep the economy stable. The Fed’s “dual mandate” is to pursue maximum employment (healthy unemployment rate) and stable prices (healthy inflation rate).
The Fed was created in 1913, in response to a series of financial panics that had occurred in the United States in the 1800s and early 1900s. The idea was to create a central bank that would have the power to control the supply of money and credit, which could help prevent financial panics and keep the economy running smoothly.
The Fed has several important responsibilities, including:
- Conducting monetary policy: The Fed controls the money supply by adjusting interest rates and buying and selling government securities.
- Regulating banks: The Fed supervises and regulates banks and other financial institutions to ensure they are operating safely and soundly.
- Providing financial services: The Fed provides a variety of financial services to banks and other financial institutions, including clearing checks and processing electronic payments.
- Maintaining financial stability: The Fed monitors the financial system for signs of instability and takes steps to prevent or mitigate crises.
The Fed is run by a Board of Governors, which is appointed by the President of the United States and confirmed by the Senate. The Fed also has 12 regional banks located throughout the country, which help carry out its policies and provide financial services to banks in their regions.