How Does the Federal Reserve Affect the Economy?
If you follow financial news, you’ve probably heard many references to “the Fed” along the lines of “the Fed held interest rates,” or “market watchers are wondering what the Fed will do next.” So what exactly is the Fed and what does it do?
What is the Federal Reserve?
The Federal Reserve — or “the Fed” as it’s commonly called — is the central bank of the United States. The Fed was created in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system.
Today, the Federal Reserve’s responsibilities fall into four general areas:
- Conducting the nation’s monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices
- Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
- Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
- Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation’s payments systems