Many of of have heard about the Federal Reserve in the news and know that it affects us in profound ways. How many of us really know what the Federal Reserve is, how it was founded, what responsibility it holds? Who controls the organization? This article will give you a brief overview so you have a general understanding of what the role of this organization is.
The Federal Reserve is the central banking system of the United States. It was founded on December 13, 1913 with the enactment of the Federal Reserve Act. The original enactment was in response to a series of financial panics early in the 20th century. In some regards, not much has changed.
The Federal Reserve acts as the monetary authority of the United States currency (the US Dollar) and as the central bank of the United States. Some of the functions the fed is responsible for today include the following:
- Managing bank panics (such as large numbers of people running to the bank to withdraw all of their currency)
- The supervision and regulation banking institutions
- The management of the money supply in the country with the goal of encouraging maximum employment, stable prices and stable interest rates
- To respond to currency needs (shortages and surpluses)
Because the Federal Reserve in the United States has a significant influence on the world’s reserve currency (the United States dollar), they are a very powerful organization. The decisions of this organization have profound effects on the world economy. These decisions can have the following impacts:
- Cause higher inflation or fight off the signs of deflation.
- Send the stocks markets of the world higher or lower depending on policy decisions.
- Increase or decrease interest rates on bank loans and savings accounts in short order.
- Reduce the value of our currency by adding to our money supply, which puts upward pressure on inflation rates.
As you can see below, there are 12 Federal Reserve banks located throughout the country that serve different regions. They are as follows:
- New York
- St. Louis
- Kansas City
- San Francisco
I hope this quick overview gave you a better idea of who the Federal Reserve is and what role they play in our everyday lives. If you keep up on the financial news of the day, you know that this organization is very controversial and very influential in the monetary policies of our country, which contribute to the health of our economy, the stock market and the financial well being of each individual citizen.
What interesting fact do you have about the Federal Reserve System? Do you think the system should remain in place or do you think the organization should be abolished?