Federal Reserve

The Federal Reserve, often referred to as the Fed, is the Central Banking system of the United States. Established in 1913, it serves several key functions, including regulating banks, conducting monetary policy, maintaining financial stability, and providing financial services. The Federal Reserve aims to promote maximum employment, stable prices, and moderate long-term Interest Rates.

Functions

• Monetary Policy: The Fed adjusts Interest Rates and controls the Money Supply to influence economic activity. For example, during the 2008 financial crisis, the Fed lowered Interest Rates to stimulate the economy.
• Bank Regulation: The Federal Reserve supervises and regulates banks to ensure the safety and soundness of the banking system. For instance, the Dodd-Frank Act expanded the Fed’s regulatory powers following the financial crisis.
• Financial Services: The Fed provides services to the government and Financial Institutions, including Check clearing and electronic payments.
• Financial Stability: The Fed monitors and addresses systemic risks in the financial system, as seen during the COVID-19 pandemic when it took measures to support Liquidity in the markets.

Examples and Cases

In 2020, the Federal Reserve implemented emergency measures, including lowering Interest Rates to near-zero and purchasing large quantities of Treasury Securities, to coMBAt the economic impact of the pandemic.

Another example is the Quantitative Easing programs initiated after the 2008 crisis, aimed at stimulating the economy by increasing the Money Supply.