The Responsibilities and Powers of the Federal Reserve Draft Essay

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The Federal Reserve System which is often referred to informally as the Federal Reserve or the FED, in its most simplistic description t is basically the central banking system of the United States. The FED was established in 1913 via the Federal Reserve Act. Despite governmental independence the FED is accountable to Congress because Congress has the authority to amend the Federal Reserve Act at any time. The FED is structured uniquely to eliminate full governmental control but still maintain a degree of accountability to the government and the general public. A board of directors represents governmental interests, while regional reserve banks represent private interests. Consequently it maintains …show more content…

Quote). The feds have four generalized primary roles which include the regulation of financial institutions, assuming the role as the US government’s bank, acting as a banker’s bank and managing the country’s money supply. The board of governors sets monetary policies while the regional reserve banks provide a service role. They perform policy and monitor financial institutions. The feds role as it relates to monetary policy involves the maintenance of stable prices (controlling inflation) and maximizing employment and production output. These goals are accomplished by manipulating short-term interest rates.
As the term indicates, monetary policy involves actions to influence financial conditions in order to reach specific economical goals. Short-term interest rate is the variable which is used to indirectly influence demand which consequently impacts the economy. A typical example can be observed where the lowering of interest rates make borrowing less expensive and motivates consumer spending because they can get a better deal on a loan. The extra spending stimulates economic growth. If there exists too much money in the economy demand increases comparatively faster than supply, which serves to create product shortage and eventually inflation. The opposite occurs if there isn’t sufficient money in the economy. People

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