Federal Reserve

The Federal Reserve System, often shortened to the Federal Reserve or simply the Fed, is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act. The system considers itself 'an independent central bank' because its monetary policy decisions do not have to be approved by the president or by anyone else in the executive or legislative branches of government, it does not receive funding appropriated by Congress, and the terms of the members of the board of governors span multiple presidential and congressional terms.

The Federal Reserve's dual mandate is to maximize employment and stabilize prices. Its duties have expanded over the years, and include supervising and regulating banks, maintaining the stability of the financial system, and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed also conducts research into the economy and provides numerous publications, such as the Beige Book and the FRED database.

The Federal Reserve System is composed of several layers. It is governed by the presidentially appointed board of governors or Federal Reserve Board (FRB). Twelve regional Federal Reserve Banks, located in cities throughout the nation, regulate and oversee privately owned commercial banks. Nationally chartered commercial banks are required to hold stock in, and can elect some board members of, the Federal Reserve Bank of their region.

The Federal Open Market Committee (FOMC) sets monetary policy by adjusting the target for the federal funds rate, which generally influences market interest rates and, in turn, US economic activity via the monetary transmission mechanism. The FOMC consists of all seven members of the board of governors and the twelve regional Federal Reserve Bank presidents, though only five bank presidents vote at a time: the president of the New York Fed and four others who rotate through one-year voting terms.

The federal government sets the salaries of the board's seven governors, and it receives all the system's annual profits after dividends on member banks' capital investments are paid, and an account surplus is maintained. In 2015, the Federal Reserve earned a net income of $100.2 billion and transferred $97.7 billion to the U.S. Treasury, and 2020 earnings were approximately $88.6 billion with remittances to the U.S. Treasury of $86.9 billion.

The Federal Reserve has been criticized for its approach to managing inflation, perceived lack of transparency, and its role in economic downturns. Figures such as Milton Friedman and Ron Paul have argued that its actions, such as expansionary policies and bailouts, contribute to inflation, asset bubbles, and moral hazard. Critics have also noted that the shift from the gold standard to fiat currency has led to long-term inflation and financial instability, with some calling for the Fed's abolition or greater accountability through audits.

"The Federal Reserve has a dual mandate to promote maximum employment and price stability. However, its actions have often prioritized the interests of Wall Street over those of Main Street." — Ron Paul

former U.S. Representative and presidential candidate

"The Federal Reserve's independence is a key feature of its design, allowing it to make decisions based on economic conditions rather than political considerations." — Kevin Warsh

Chair of the Federal Reserve

The Federal Reserve has been a topic of controversy and debate in recent years, with some critics arguing that its actions have contributed to economic instability and inequality. The shift from the gold standard to fiat currency has also led to concerns about the long-term implications of the Fed's policies. However, others argue that the Fed's independence and expertise are essential for maintaining economic stability and promoting maximum employment.

"The Federal Reserve's dual mandate is a key feature of its design, allowing it to balance the competing goals of promoting maximum employment and price stability." — Kevin Warsh

Chair of the Federal Reserve

The Federal Reserve's role in the economy has also been the subject of recent news and updates, with the current chair, Kevin Warsh, facing criticism for his approach to managing inflation and his role in the economy. The Fed's Beige Book, which provides a snapshot of economic conditions, has also been a topic of interest, with some analysts arguing that it provides valuable insights into the state of the economy.