FOMC and FED Basics

Overview

The central bank of the United States that is entrusted with the responsibility of making sure the nation has a flexible, safer, and stable monetary and financial system is known as the Federal Reserve or just the Fed. The Congress created this system after President Woodrow Wilson signed the agreement that made the Federal Reserve Act into law. The Federal Reserve came into existence on December 23rd, 1913.

Four Areas Of Federal Reserve Responsibility

  1. Making sure the monetary policy of the nation is capable of providing employment and stable prices to everyone, which is done by controlling the economy’s credit and money supply.
  2. Keeping the financial institutions like banks in check, so the consumers’ credit rights are always protected.
  3. Managing any kind of risk that occurs in the markets by stabilizing the financial system.
  4. Taking care of all the payment systems of the nation, and help the government, financial, and foreign institutions by providing financial services on time.

Structure Of The Federal Reserve

The Federal Reserve is a system comprising of one central agency and twelve regional agencies. At the center, in Washington DC is the independent agency with the Board of Governors. In twelve major cities across the US, Federal Reserve Banks have been placed at strategic locations, to regulate and maintain the financial markets in an effective manner.

While local banks maintain the economy of each region, all of these banks are accountable to the Federal Reserve. Not only does the Federal Reserve supervise all the financial institutions, it also provides banking services to the federal government and depository organizations always making sure that the consumers’ rights are protected and everyone is given a fair treatment.

The body that is responsible for making policies related to money is the Federal Open Market Committee (FOMC), which comes under the Federal Reserve. It has twelve members who have the right to vote, seven of whom come from the Board of Governors and the remaining five from the presidents of the twelve Reserve Banks.

The Chairman leading the FOMC is the Chairman of the Board of Governors. All the presidents of the Reserve Banks, even the ones who are the non voting members have the right to attend the meetings of the FOMC where the policies and economy are discussed and assessed.

As mentioned above, the Federal Reserve controls the currency in the entire nation. It accomplishes this by regulating the open market operations. By using this tool, it influences the conditions of the money market and controls the growth of money and credit. The purchases of large-scale assets, and currency swaps also fall under the supervision of the FOMC.

Duties Of The Reserve Banks

  1. Control the currency by regulating the institutions like credit unions and banks
  2. Provide supervision to all commercial banks and bank holding companies that are members of the Federal Reserve System
  3. Provide official opinions for making policies regarding money
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