The chairman of the Federal Reserve Board is the public face of the Federal Reserve Bank. Officially, the chairman is the active executive officer of the Federal Reserve Board. The chairman's main responsibility is to carry out the mandate of the Fed, which is to promote the goals of maximum employment, stable prices, and moderate long-term interest rates.
The Fed is composed of 12 Federal Reserve banks located in regions around the United States. The banks of the Fed carry out the day-to-day operations and policies of the Fed.
- The chairman of the Federal Reserve Board is the active and most visible executive officer at the Federal Reserve Board.
- The chairman provides leadership and executes the mandate of the central bank, pushing for maximum employment, stable prices, and long-term interest rates in the moderate range.
- The chairman and vice-chairman are both chosen by the president from among the seven members of the Board of Governors and then confirmed by the Senate; both initially serve a four-year term and can be reappointed.
- The chair is also the chair of the Federal Open Markets Committee (FOMC) and is responsible for determining short-term U.S. monetary policy.
Current Fed Chairman
Jerome Powell took over the role of chairman on February 5, 2018. He was nominated by former President Trump in November 2017. Powell was previously a partner at The Carlyle Group, a private investment firm, and served as an assistant secretary and undersecretary of the Treasury during the administration of President George H.W. Bush.
The position of chairman was previously held by Janet Yellen, who took over the post in 2014 under President Obama.
Appointment of the Chairman
The chairman is picked from one of the seven members of the Board of Governors. As set forth in the Banking Act of 1935, the president appoints the seven members of the Board of Governors, who are then confirmed by the Senate.
Members of the Fed serve staggered terms of 14 years and may not be removed for their policy opinions. The president nominates a chairman and vice-chair, both of whom the Senate must also confirm. The chairman and vice-chairman are appointed to four-year terms and can be reappointed, subject to term limitations.
Duties of the Chairman
By statute, the chairman testifies before Congress twice a year on issues that include the Fed’s monetary policy and objectives. The chairman also meets regularly with the secretary of the Treasury, who is a member of the president's Cabinet.
One of the chairman's most important duties is to serve as the chair of the Federal Open Markets Committee (FOMC), which is critical in setting short-term U.S. monetary policy. The chairman's salary is set by Congress.
The Board of Governors currently has six members and one vacancy: Jerome Powell (R), Vice Chairman Richard Clarida (R), Vice Chairman for Supervision Randal Quarles (R), Lael Brainard (D), Michelle Bowman (R), and Christopher J. Waller.
The Federal Open Markets Committee (FOMC)
The FOMC meets eight times a year and is composed of the seven members of the Board of Governors along with five reserve presidents of the Fed. The president of the New York reserve bank serves continuously while the other four bank presidents rotate regularly.
How the Federal Funds Rate Works
The federal funds rate is the interest rate at which member depository institutions lend each other money held at the Fed overnight. It is the key interest rate for the U.S. economy because it is the base rate that determines the level for all other interest rates. A higher federal funds rate makes it more expensive to borrow money.
The effects of the COVID epidemic forced the FOMC to lower the federal funds rate to 0.25%, which is effectively zero, at its most recent meeting on March 16, 2020, from a rate of 1.50% set on March 3, 2020. The last time the rate was so low was during the 2008 financial crisis.
The FOMC kept the federal funds rate at 0.25% for seven years after the crisis to increase the money supply and help achieve the Fed's official mandate. As the economy recovered, the FOMC began raising rates again in late 2015.
Between December 2015 and December 2018, the FOMC raised the fed funds rate one-quarter percentage point at a time, from 0.25% to 2.50%. The last time the rate was at 2.50% was in December 2018.
The discount rate is the interest rate charged to banks that receive loans from regional Federal Reserve Banks. It is also known as the discount window. There are three types of discount windows: primary credit, secondary credit, and seasonal credit.
The FOMC also buys and sells government treasuries to increase and decrease the money supply as necessary. The Fed undertook the largest economic stimulus in history during the 2008 financial crisis by buying massive amounts of U.S. Treasurys and mortgage-backed securities (MBS). The program, called quantitative easing (QE), added around $3.5 trillion to the Fed’s balance sheet. This controversial program ended in 2014 after three large rounds of bond buying.
Since the onset of the coronavirus pandemic, in addition to cutting its key interest rate to 0% and embarking on quantitative easing, the Fed has introduced or reintroduced nine emergency lending facilities.