The Federal Reserve: Explained
The Federal Reserve is a big part of today’s economy. The Federal Reserve controls the money in the United States without any power of political parties; it is its own entity (Satterthwaite, 2014). The board of Governors based in Washington D.C, and 12 regional Federal Reserve Banks located in the U.S. major cities, regulate the flow of money in the economy (Federal Reserve, 2014). The reserve has its own set of rules and regulations that must be followed.
The Federal Reserve was born in 1913 (Satterthwaite, 2014). After the United States was bailed out by business mongrel J. P Morgan in 1907, country could not rely on the wealthy to bail them out each time there was a financial crisis (Federal Reserve Bank …show more content…
The Committee consists of twelve members; seven come from the Board of Governors and five of the twelve presidents from the Reserve Banks (Federal Reserve, 2014). The chair of the Federal Open Market Committee is the chair of the Board of Governors. Janet Yellen is the current chairmen, in addition, she is the first woman in that position. The vice chair is the president of the Federal Reserve Bank of New York and is a permanent member of the Federal Open Market Committee (Federal Reserve, 2014). Stanly Fischer is the current vice chairman. Four presidents of the Reserve Banks rotate the last of the votes. All of the members of the Reserve Banks, though not included in the vote, attend a committee meeting, they participate in the discussions about the economy and contribute the options on which policy should be used (Federal Reserve, 2014). The committee meets eight times a year, unless an emergency meeting is held to discuss economic and financial development (Federal Reserve, 2014). The committee issues a policy statement that summarizes each meeting in accordance to the economic position and the policy decision (Federal Reserve, 2014). The chairman speaks to the press four times a year on the current aspect and that to expect in the economy. In the weeks following meeting, the minutes of the committee meeting are published for the public. The Federal Reserve, by law, must regulate monetary policy to …show more content…
The first, the open-market operations and the most frequent way to control monetary policy. In order to, manage the level of reserves in the banking system, the FED constantly buys and sells U.S. securities, at which, controls interest rates (Investopedia, 2014). The FED does not independently decide which securities dealers to do business, but more of an open market where many securities dealers compete. The Federal Open Market Committee sets a target rate, but is ultimately controlled by the open market (Federal Reserve, 2014). The second, discount rates, which are interest rates that banks pay to the Federal Reserve Banks for short term loans (Investopedia, 2014). The discount rates are usually lower than the federal funds rates, although, similar they are different. The discount rate is important to the market because it gives notice that the FED is changing plans and some insight of what those plans must be. The next tool is setting Reserve Requirements, which are the reserve amounts that depository institutions are supposed to hold bank accounts (Investopedia, 2014). With the reserve requirements it resolves the amount of money that a bank could loan out to customers or invest. Usually the requirement is 10 percent of whatever the accounts together equal (Investopedia, 2014). Though, the reserve requirements fall because of day to day business. Banks can have a lot of money deposits,
The Federal Reserve is a big part of today’s economy. The Federal Reserve controls the money in the United States without any power of political parties; it is its own entity (Satterthwaite, 2014). The board of Governors based in Washington D.C, and 12 regional Federal Reserve Banks located in the U.S. major cities, regulate the flow of money in the economy (Federal Reserve, 2014). The reserve has its own set of rules and regulations that must be followed.
The Federal Reserve was born in 1913 (Satterthwaite, 2014). After the United States was bailed out by business mongrel J. P Morgan in 1907, country could not rely on the wealthy to bail them out each time there was a financial crisis (Federal Reserve Bank …show more content…
The Committee consists of twelve members; seven come from the Board of Governors and five of the twelve presidents from the Reserve Banks (Federal Reserve, 2014). The chair of the Federal Open Market Committee is the chair of the Board of Governors. Janet Yellen is the current chairmen, in addition, she is the first woman in that position. The vice chair is the president of the Federal Reserve Bank of New York and is a permanent member of the Federal Open Market Committee (Federal Reserve, 2014). Stanly Fischer is the current vice chairman. Four presidents of the Reserve Banks rotate the last of the votes. All of the members of the Reserve Banks, though not included in the vote, attend a committee meeting, they participate in the discussions about the economy and contribute the options on which policy should be used (Federal Reserve, 2014). The committee meets eight times a year, unless an emergency meeting is held to discuss economic and financial development (Federal Reserve, 2014). The committee issues a policy statement that summarizes each meeting in accordance to the economic position and the policy decision (Federal Reserve, 2014). The chairman speaks to the press four times a year on the current aspect and that to expect in the economy. In the weeks following meeting, the minutes of the committee meeting are published for the public. The Federal Reserve, by law, must regulate monetary policy to …show more content…
The first, the open-market operations and the most frequent way to control monetary policy. In order to, manage the level of reserves in the banking system, the FED constantly buys and sells U.S. securities, at which, controls interest rates (Investopedia, 2014). The FED does not independently decide which securities dealers to do business, but more of an open market where many securities dealers compete. The Federal Open Market Committee sets a target rate, but is ultimately controlled by the open market (Federal Reserve, 2014). The second, discount rates, which are interest rates that banks pay to the Federal Reserve Banks for short term loans (Investopedia, 2014). The discount rates are usually lower than the federal funds rates, although, similar they are different. The discount rate is important to the market because it gives notice that the FED is changing plans and some insight of what those plans must be. The next tool is setting Reserve Requirements, which are the reserve amounts that depository institutions are supposed to hold bank accounts (Investopedia, 2014). With the reserve requirements it resolves the amount of money that a bank could loan out to customers or invest. Usually the requirement is 10 percent of whatever the accounts together equal (Investopedia, 2014). Though, the reserve requirements fall because of day to day business. Banks can have a lot of money deposits,