• No responses have been submitted.
  • The way the Fed works is confusing. I advise an economics class to get a hold of it.

    Here's the run down of how the Federal Reserve works.
    It's a Quasi Public Bank where the United States is the majority share holder.
    It's structured into 4 parts.
    1) The Board of Governors- 7 governors that meet regularly with 14 year limits to isolate them from political pressure. This is the policy making arm of the Fed
    2) The Federal Open Market Committee (FOMC)- The combined Board of Governors and 5 representatives of Federal Reserve Banks. FOMC makes decisions regarding money supply through the buying and selling of bonds and securities. They enforce policy determined by the Board of Governors.
    3) The 12 Fed Banks and 25 branch banks-The 12 Federal Reserve Banks each have 9 directors.
    4) Member Banks-There are over 5,000 banks (large and small) that are chartered nationally and have to join the Fed. About 13% of state chartered banks are members of the Fed.

    The FOMC uses three things to alter and construct monetary policy: Required Reserves (the amount any bank must have on hand and can not loan out), the Discount Rate (the interest charged on member banks on loans from the Fed), and Open Market Operations (buying/selling bonds).

    The Fed has a profit (it is a bank) of about $30 billion a year.

    Now the Fed chooses and publishes a target goal for core inflation, usually around 2% a year. The Fed publicly estimates how high it expects inflation to be in the coming year. It steers monetary policy to try to hit the target inflation rate. Some people refer to the Fed as the "inflation Hawk" because of this. If inflation is getting above the target, the bank raises interest rates to cool the economy (because higher interest rates mean less loans b.C. They're now more expensive). If inflation is too low, the Fed will lower interest rates to juice up growth.

    I hope I've cleared things up on how the Federal Reserve system works.
    Honestly, this thing is crucial to the World and American economy. Why else is the Chairman of the Federal Reserve in the Top 10 most powerful people on Earth.

    It isn't a federal institution, it's private, but it's sole goal is to aid the US economy under oversight by Congress.

    So it's a highly regulated, yet independent quasi-bank of the United States.

    Posted by: JDuB
  • It has little to do with the government.

    My jaw dropped today reading the "pros and cons" of the Federal Reserve on this site. Apperently it is a "government institution". Well thats news to me. All other accounts (and I've read many) indicate the federal reserve is a privately owned and operated business. The people running this business are not elected and it's my understanding that they prefer to be unnamed.

Leave a comment...
(Maximum 900 words)
No comments yet.