The Federal Reserve System, commonly known as the Federal Reserve or the Fed, is the central banking system of the United States. It was established in 1913 with the passage of the Federal Reserve Act to provide the country with a stable, flexible, and secure monetary and financial system.
Structure
The Federal Reserve is composed of three primary components:
- The Board of Governors of the Federal Reserve System in Washington, D.C.
- Twelve regional Federal Reserve Banks
- The Federal Open Market Committee (FOMC)
This structure is designed to balance centralized authority with regional representation.
Functions
The Federal Reserve performs several key functions, including:
- Conducting monetary policy to promote economic stability
- Supervising and regulating banking institutions
- Maintaining the stability of the financial system
- Providing financial services to the United States Treasury
Monetary policy
Monetary policy decisions are primarily carried out through adjustments to interest rates and open market operations. The Federal Reserve’s objectives include maximum employment, stable prices, and moderate long-term interest rates.
Independence
Although created by the United States Congress, the Federal Reserve operates independently of the executive branch. Its policy decisions do not require presidential approval, though it remains subject to congressional oversight.