The Federal Reserve Introduction The Federal Reserve is one of the chief operators of the United States financial system. Even as its function is of primary importance, most American's are less familiar with the Federal Reserve than any of the major government entities…
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History, Structure, and Function The Federal Reserve was created in 1913 by Woodrow Wilson (Wells 2010). In the late 19th and early 20th centuries credit was controlled entirely by private banks. Farmers in the mid-western regions grew increasingly upset by this fact, as they complained that oftentimes the banks would alter their credit options at times when the farmers were vulnerable. The Federal Reserve was created as a compromise, with the banks still controlling credit, but the government determining the supply of funds (Wells 2010). While the intervening years have seen significant reforms in the way the Federal Reserve operates, its underlining function has remained the same. Private banks are able to borrow from the reserve at a discounted rate, they then loan this money to borrowers at the federal funds rate, or interest rate. As the Federal Reserve raises rates, so must the banks raise the rates of loans. This system is designed to ensure fair and equitable lending throughout the country. The current chairman of the Federal Reserve, who was recently reappointed in January of 2010, and Alan Greenspan and Paul Volcker preceded him (Johnson, Web). Federal Open Markets Committee (FOMC) The Federal Open Markets Committee is a branch of the Federal Reserve that has the responsibility of regulating the United States’ open market operations. While there are a great variety of committees and functions with the Federal Reserve, this committee perhaps is the most notable as it functions to make essential decisions about interest rates and the general growth of the supply of money within the country (Chandler 1971). These are factors that directly and significantly affect major aspects of the nation’s economy. In these regards, the FOMC is the primary monetary branch of the Unites States. The committee functions in a variety of complex, but well structured ways. In these regards, the committee meets and sets short-term objectives for long-term objects within a long-term structure of economic understanding. The short-term objectives work to ensure that the federal funds rate remains constant. In addition to regulating the federal funds rate, the Federal Open Markets Committee oversees operations that the Federal Reserve has overtaken abroad. They accomplish this task in close collaboration with the United States Treasury department. In terms of meeting structure, the FOMC is required by law to meet at least four-times per year, but generally they convene eight times annually (Chandler 1971). During the meetings, open reports are presented by committee members. The committee then works toward reaching a consensus in regards to policy decisions. During this entire process the Manager of the System Open Market Account oversees the policy presentations. What I Learned & My Point of View In research the Federal Reserve there was a great amount of structural and historical information I gained, but perhaps the greatest insights I gained were in regards to how the Federal Reserve functioned during the recent economic recession. When the recession hit the Federal Reserve began the process of lowering interests rates to increase consumer spending. At this point, the Fed has virtually lowered the interest rate to 0%. In addition to
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“The Federal Reserve Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1390202-the-federal-reserve.
In simple terms, the Federal Reserve came into being by enactment of the Congress. Consequently, the Congress has the obligation of overseeing the monetary policy and the Federal Reserve. This paper analyzes the importance of the Federal Reserve and strategy in stabilizing the economy of the country.
It strives to be as realistic as possible by considering events that took place since the latest economic recession in 2008. Many unfavourable events affected the Fed since then. Recommendations for improvements in the roles of the Fed were included. There were significant initiatives by the Board of Governors since mid-2012.
Over the years, the system and structure if the federal reserve has evolved to meet the effects of economic crisis and great depression in the economy. The Federal Reserve System was created under the Federal Reserve Act in order to address the issue of panic in the banking industry and acts as the final check point and regulator in the clearing system and the banking industry.
They jointly implement the monetary policy which is set by the Federal System. Every Federal Reserve banks governs the regulation of commercial banks in their district. Alexander Hamilton, the first secretary of treasury of United States, proposed the idea of instituting a National Bank in order to develop the country in terms of all the financial aspects.
It is worth noting that the collapse of the mortgage market was necessitated by Fed lax on the money market. The Federal Reserve addresses the economy by regulating financial institutions, setting monetary policies and operating the countries payment systems.
Similarly, an increase in the money supply increases the cost of loans and people spend less. This reduces the money supply in the economy. Similarly, when interest rates decrease the exact opposite happens and money supply in the economy increases.
1b) Open-Market Operations: In this method, the sale and purchase by central bank in the security market has desired effect on the money supply in the economy.
Monetary policy is the actions taken by the central bank to influence the availability and cost of money and credit to assist in promoting national economic goals. The Fed's monetary policy decisions affect the flow of money and credit in the economy.
The Federal Reserve System includes the Federal Open Market Committee, the Board of Governors, and the Federal Reserve Bank Presidents.
The key objectives of the monetary policy are stipulated in the Federal Reserve Act. This act asserts that the Federal open Market Committee and the Board of Governors should always strive to promote the goal of stable
It will also evaluate the policies that Federal Reserve used to fix the recession to explain why it was effective in the same. The research arguments will be derived from published articles, credible websites and datasets all for
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