Fed Making History
The U.S. Federal Reserve was created by congress under the Federal Reserve Act of 1913 (sometimes called the Glass-Owen bill) to provide the country with a secure and stable economic and financial structure. Now the Fed wants to do something new: talk to us.
Tomorrow, after its FOMC policy meeting, Fed Chairman Ben Bernanke will conduct his first of three regularly-scheduled news conferences. Why now and who cares? That was the topic of this morning's TV segment.
If you don't like Ben Bernanke, I have bad news: we're stuck with him for a while. His second term as Chairman ends January 31, 2014 (his term as a Board member ends January 31, 2020).
If you sort of forgot what the Fed does, here's a quick cheat sheet:
- The president appoints a Federal Reserve Board of seven members to terms of fourteen years, at staggered intervals.
- The Fed's job is to supervise the conduct of the banks in the Federal Reserve System and to manage and influence the amount of money and credit in the economy.
- The Fed's main goals are: the promotion of sustainable economic growth, full employment, and stability of prices. In other words, the Fed navigates economic growth that is too fast, which causes inflation, or too slow, which could lead to a recession.
- The Fed's three main tools to achieve their stated goals are: (1) open market operations, or the buying and selling of U.S. government bonds; (2) setting the level of reserve requirements, which are the portions of deposits that banks must maintain either in their vaults or on deposit at a Fed Bank; and (3) establishing the discount rate, which is the interest rate charged by Fed Banks to depository institutions on short-term loans--that's the rate that you hear about after the big meetings.