The Fed has more power and influence on financial markets than any legislative entity. Its monetary decisions are intensely observed and often lead the way for other countries to take the same policy changes. We hope that this tutorial has helped to shed some light on how the Fed affects the markets.
- The Federal Reserve Board was created to in 1913 to provide the nation with a safer, more flexible and more stable monetary and financial system.
- The Board of Governors of the Federal Reserve heads up the Fed.
- Twelve Regional Federal Reserve Banks are the operating arms of the Fed.
- The Federal Open Market Committee (FOMC) is the policy-making branch of the Federal Reserve.
- The Fed's mandate is "to promote sustainable growth, high levels of employment, stability of prices to help preserve the purchasing power of the dollar and moderate long-term interest rates."
- The Fed serves as the banker's bank, the government's bank, the regulator of financial institutions and as the nation's money manager.
- Monetary policy is influenced through open-market operations, the discount rate and reserve requirements.
- The FOMC sets a target for the federal funds rate and attempts to reach that rate primarily through the use of open market operations.
- The FOMC typically meets eight times per year to make decisions on monetary policy.
- If the FOMC wants to increase economic growth, it will reduce the target federal funds rate (and vice versa).
- If the target rate has been increased, the FOMC sells securities. If the FOMC reduces the target rate, they buy securities.
- Reducing the target rate means that the fed is putting more money into the economy (and vice versa).
- Chairman of the Fed, Ben Bernanke took over the position from Alan Greenspan on February 1, 2006. Greenspan had held the position since 1987.
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