What is FED?
FED (Federal Reserve System), commonly known as the Federal Reserve Bank of the United States or the central bank of the United States, is responsible for overseeing the nation’s largest banks, executing monetary policy, and providing financial services to the US government. Additionally, the Fed supports financial and economic stability.
In its capacity as the US government’s financial agent, FED manages commercial banks’ reserve accounts, makes loans to them, and works with the US Mint to keep an eye on the nation’s coinage supply.
Federal Reserve System
The Federal Reserve Act, which President Woodrow Wilson signed into law on December 23, 1913, is what gave rise to the current system. There were 12 Reserve banks and the Board of Governors of the Federal Reserve System.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, established the Federal, Federal Open Market Commission, and Consumer Financial Protection Bureau (CFPB) (CFPB guarantees assumed some functions of the former Consumer Advisory Council, which existed from 1976 to 2011). There are a large number of member banks.
Structure of the Federal Reserve System
To understand how the Fed works and operates, we need to know the structure of this system in detail.
Specifically: The Federal Open Market Committee consists of 12 member banks, including 7 members of the Board of Governors, the president of the Federal Reserve Bank of New York, 4 members are appointed by the Federal Reserve banks elected, responsible for setting Federal Reserve Bank policy to encourage the long-term goals of price stability (i.e. controlling inflation through interest rate adjustments) and maximizing employment. make it sustainable.
The Federal Advisory Council, whose role is purely advisory, consists of a representative from each of the 12 Federal Reserve counties.
FED – The Federal Reserve has many financial functions
FED – The Federal Reserve has many financial functions
How does FED work?
The most significant methods by which the Federal Reserve System exercises its management authority might be categorized as tools of direct or indirect control.
By changing the legal reserve ratio, or the percentage of deposits the member bank must retain in its reserve account, one can increase or decrease the amount of new loans that commercial banks can issue.
As fresh deposits result from loans, the potential money supply is thus either increased or decreased.
The discount rate, or the interest rate that Federal Reserve banks charge for short-term secured loans to member banks, can also be used to manipulate the money supply. Increasing the cost of these loans has the same impact as raising the reserve requirement because banks frequently use them to keep reserves at the necessary level.
Functions of FED
The US Federal Reserve has four main functions:
- Control inflation by promoting maximum employment, ensuring interest rates remain at a moderate level for a long time.
- Management and supervision of the system of large and small banks: The FED has the function of supervising and regulating the activities of national banks. At the same time, the Fed is also the place to enact laws to protect consumers.
- Maintain financial system stability
- Providing banking services: The Fed also provides other services to domestic and foreign banks.
The process of formation and development of the Federal Reserve
The process of formation and development of the Federal Reserve
Authority of FED
- In order to achieve full employment and stable prices, a nation’s monetary policy is implemented via changing the monetary and credit conditions in the economy.
- To preserve consumer credit rights and the safety and soundness of the country’s banking and financial system, supervision and regulation of banks and other significant financial institutions is necessary.
- Keep the financial system stable and guard against any potential systemic hazards in the financial markets. operates and regulates the country’s payments system, as well as providing certain financial services to the U.S. government, U.S. financial institutions, and foreign governmental entities.
Conclusion
With the knowledge provided above, it is clear that the Fed has an impact on every aspect of American life. The financial system, the value of stocks or cryptocurrencies, as well as personal interest rates are all directly impacted by the Fed. In this way, you are also directly impacted by the Fed. Consequently, keep an eye out for updates from the Fed.
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