Federal Reserve Paper - Essay Example

3. Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets. 4. Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system. Discussion Since the Federal Reserve Act of 1913 the Federal Reserve has been in governance of monetary policy. The policy is controlled by maintaining open market operations, reserve requirements, and discount rates (Monetary Policy, p.1). In section 2A of the Federal Reserve Act the objectives of the monetary policy read “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates” (About the Fed, p. 1). In this process the primary function of the central bank is to increase the credit and cash flow.

The way this task is completed is by acting as a hub for the Federal Open Market Committee (FOMC). The Federal Reserve Bank relinquishes the funds from depository institutions into public funds. . 1). Generally in order for the central bank to be successful at this agenda there has to be something of monetary value. The basic function of money is used as a stake horse for the Reserve bank. When the economy is in high demand of currency the Federal Reserve Bank issues it to institutions. When the demand for cash is low the bank will recover money from institutions and allow them to access a credit account (The Structure of the Federal Reserve, p. 1) These involvements along with the influence of the monetary policy will have a visible impact on the economic state.

In light of the recent recession there has been some progress made toward fulfilling the monetary policy. The Federal Reserve Chairman, Ben S. Bernanke, made a testimonial over the recent effects of the economic recovery. Based on his report the new monetary policy has not yet had a positive effect. According to the report given by Bernanke the objective for the Federal Reserve to maximize employment and stabilize prices is near but offset by an expected decline of employment in 2011. It is expected that with the policy in place the unemployment rate will go down to 8% by 2012.

The effects of the currently high unemployment rates force the economy into lower inflation periods. That force places us in range for deflation and is the cause of less production (Bernanke, p. 1). To enforce a consistent upward turn in the objectives of the monetary policy several Acts have been implemented. Of the lot, the Government Performance and Results Act Strategic Planning Document (2008-2011) outlines that the monetary policy goals will be met using the following objectives: 1. Stay abreast of recent developments in and prospects for the U.S. economy and financial markets, and in those abroad, so that monetary