The Federal Reserve System better known as Federal Reserve is the US central
banking system, which was created in 1913. The Federal reserve was created with
the Federal Reserve Act, which states that the purpose of the Federal reserve
is: “To provide for the establishment of Federal reserve banks, to furnish an
elastic currency, to afford means of rediscounting commercial paper, to
establish a more effective supervision of banking in the United States, and for
other purposes.”. One of the main reasons for the Federal Reserve creation was
the need for a better way to deal with severe financial crises. An example of
such crisis was the 1907 bank panic, which caused bank runs in which bank
customers started withdrawing all their money from the US banking system.
The Federal Reserve has several important functions in the US banking system, besides dealing with bank runs. The Federal Reserve plays the role of a central bank in US. The Federal Reserve System also controls the US money supply (the money in the US economy) and is responsible for the US monetary policy. The Fed also supervise and regulate the US banks, and maintain the strength of the US financial system. The Federal Reserve also acts as a US government banker and offers a variety of financial services to US depository institutions.
The Federal Reserve System consists of Board of Governors, 12 Federal Reserve Banks, Federal Open Market Committee, Member Banks and Advisory Committees. The Federal Reserve Board of Governors has seven members appointed by the US president and is the main governing agency of the Fed. The Board of Governors supervises the 12 Federal Reserve banks and is in charge of the US monetary policy implementation. The 12 Federal Reserve banks are regional US banks spread throughout the country, and they are in effect the operating arms of the Federal Reserve System. The 12 Federal Reserve Banks have several responsibilities and functions including holding cash reserves for US depository institutions, making loans to these institutions, supervise the commercial member banks of the Fed, and setting and implementing the US monetary policy. The Federal Open Market Committee is directly responsible for managing open market operations, which is the main instrument in implementing the US monetary policy. The Federal Reserve Member Banks are US commercial banks. All US national banks are by law member of the Federal Reserve, while the US state banks are not obligated to become members. The Fed Advisory Committees play important role of the day-to-day functioning of the Federal Reserve System. Some of these committees advise the Board of Governors directly.
US Monetary Policy
The Federal Reserve is directly responsible for setting the US monetary policy. The US monetary policy has several main goals. The first goal is to promote low unemployment thus promoting stable and prosperous society. The second goal is to promote price stability/low inflation and the third goal is to promote moderate long-term interest rates.
The unemployment rate declined by 0.2 percentage point to 5.6 percent in
and the number of unemployed persons declined by 383,000 to 8.7 million. Over the
year, the unemployment rate and the number of unemployed persons were down by 1.1
percentage points and 1.7 million, respectively. (See table A-1.)
According to the US Census Bureau (USCB) there were 11,757,900 people or just
over 9% of the population between the ages of 25 and 64 who were unemployed in
2010 in the US. Some states fared better, some worse
Who owns the Federal Reserve