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  1. The Federal Reserve: Introduction
  2. The Federal Reserve: What Is The Fed?
  3. The Federal Reserve: Duties
  4. The Federal Reserve: Monetary Policy
  5. The Federal Reserve: The FOMC Rate Meeting
  6. The Federal Reserve: Conclusion

The Federal Reserve System is the central bank of the United States. It’s composed of three key entities, including the Board of Governors, 12 Federal Reserve Banks and the Federal Open Market Committee. Since 1977, it has operated under a “dual mandate” from Congress to foster economic conditions that achieve both stable prices and maximum sustainable employment – and it’s also charged with moderating long-term interest rates. The Fed serves in various capacities to promote the effective operation of the U.S. economy.

The Fed has more power and influence on financial markets than any legislative entity. Its monetary decisions often lead the way for other countries to take the same policy changes. FOMC announcements are often market-moving events, and, as such, are closely watched by investors and traders. (For more, see How to Trade the News.)

Here’s a recap of the key points in this tutorial:

  • 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.
  • A seven member Board of Governors heads the Federal Reserve.
  • 12 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."
  • 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 has eight scheduled meetings 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).
  • The president of the United States appoints the seven members of the Board, and also appoints two of the Board members to serve as chair and vice chair of the Board.
  • Recent chairs of the Board include Jerome Powell (nominated by President Trump on Nov. 2, 2017), Janet Yellen, Ben Bernanke and Alan Greenspan.
  • For a closer look at the Fed, visit the Federal Reserve’s website.      

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