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)

QuickTime™ and a decompressorare needed to see this picture.

QuickTime™ and a decompressorare needed to see this picture.

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 nation’s 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 nation’s 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 nation’s 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.

Boston Web Page

Http://www.federalreserve.gov