The Role of the Federal Reserve
Have you ever wondered who controls the money supply in the United States? I mean it’s certainly one of the most important roles someone can play in the U.S. government; the answer is the Fed. The Fed is also known as the Federal Reserve System. It’s the central banking system of the United States. It was established in 1913 by congress to control monetary policy, the use of changes in the amount of money in circulation to alter credit markets, employment and the rate of inflation (Thomson Wadsworth). It consists of seven members, including the second most important person in the government, former chairperson Ben Bernanke. All board of governors and the chairperson are elected by the President and approved by the Senate for 14-year appointments. Through the Fed and its Federal Open Market Committee (FOMC), decisions about monetary policy are made eight times a year. The FOMC is the most important body within the Federal Reserve System; it decides how the Fed should carry out monetary policy (Thomson Wadsworth). The Fed is an independent source of economic power that isn’t governed by the President or Congress. Even though the Federal Reserve System has 12 regional banks, the Federal Reserve Bank of New York is first among equals. Its jurisdiction over Wall Street makes it the largest of the Fed banks. Aside from that, the Fed has 3000 member banks.
The Fed has many methods to their madness. They have many tools that they use to control and monitor monetary policy. They’re known for their most effective method of bond buying and selling. During periods of recession and unemployment they expand rate of growth of the money supply. They do so by buying bonds and securities from primary dealers. On the other hand, when inflation occurs they do the counter-opposite of selling bonds and securities. Although that’s they’re most popular method, it’s not their only. The Feds other tools include: reserve requirement, discount window,...
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