GETTING TO KNOW THE FEDERAL RESERVE

The world’s largest economy in the world is the economy of the United States and running it, keeping it in check, and making sure that it does not weaken, are responsibilities taken up by the Federal Reserve System. A knowledge about who the Federal Reserve is and what it does is crucial to any investor who want to understand better the economy and how everyone, especially the government, involves itself in it.

The Federal Reserve or the Fed, for short, is the economic sentinel that is responsible for the US economy. It is the central bank of the United States that implements economic and monetary policies and regulate the country’s financial institutions.

It was established in 1933 by the US Congress and is headed by the Board of Governors that consist of seven presidential appointees serving for 14 year terms each. The Board of Governors is led by a chairman and a vice-chairman who are also presidential appointees subject for the approval of the senate. They are to serve for four-year terms. The incumbent chair as of 2014, and also the first woman to be appointed as Fed chair, is Janet Yellen. She took over for Ben Bernanke that has been chair since 2006.

Under the supervision of these leaders, the Federal Reserve operates and fulfills its responsibility to stimulate the growth of the economy. The Federal Reserve has 12 regional banks scattered across major cities of the US. They are the operating arm of the central bank that carry out the work of the Fed. These banks are self-sufficient whose incomes are generated from foreign currencies, loan interest of depository institutions, provided service for other banks, and government securities interest. the income is used for daily operations while any surplus is submitted to the US Treasury.

Other than the maintenance and regulation, the Federal Reserve System also creates monetary policies. This responsibility is designated to the Federal Open market Committee or the FOMC that is traditionally headed by the chair of the Fed as well. For a policy to pass, it must be voted upon by members of the FOMC which are also the Board of Governors plus the presidents of the regional Federal Reserve Banks that serve a one-year rotating basis including the president of the New York branch. And even though not all are able to vote, the presidents of all the branches of Fed are mandated to attend and participate in the policy making and discussions.

The Federal Reserve System also are responsible for all national banks and several state-chartered banks thusly designated as member banks.