The Fed is 100. Who’s the Fed?
In my ongoing attempt to keep myself informed and educated, I figured it was time to shift my focus from where is my eldest going to go to high school, onto money and the monetary system within which we operate. I know, first thing we all think of each day, but I had come to the realization that I either had almost completely forgotten, or never knew, exactly what the the Federal Reserve is. Sure, we refer to it as “the Fed”, Alan Greenspan was the head of it for most of my adult life, and now Ben Bernanke is in charge, but what is it really? I thought I’d make a little overview for all of us.
The Fed’s mandate – “to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates. “
The Fed – it has more power and influence on financial markets than any legislative entity. It was created in 1913 with the idea of creating a safer, more flexible and stable monetary and financial system. The Board of Governors of the Federal Reserve regulates the Fed. The Fed has twelve regional Federal Reserve Banks that comprise it’s operating arms. The policy making branch of the Fed is called the Federal Open Market committee (FOMC).
The FOMC meets 8 times each year.
The FOMC sets a target for the federal funds rate. It tries to reach that rate mostly through the use of open market
If the FOMC wants to increase economic growth (and don’t we all), it will reduce the target federal funds rate.
If the target rate has been increased, the FOMC sells securities. If they reduce the target rate, they buy securities. Reducing the target rate means they are putting more money into the economy.
The Fed serves as the regulator of financial institutions and as the nation’s money manager. It’s monetary decisions are intensely scrutinized and many other countries follow it’s policy changes.
Now a friend of mine has arranged for me and a few of our friends to tour our local Fed. Who knew we had one? Apparently I need to do more research.