The Federal Reserve

Federal Reserve was established to serve as the central banking system of the United States. This was aimed to:

  • Minimize banking panics
  • Improve stability of the U.S. economy
  • Organize, standardize, and stabilize American currency
Their primary task is controlling the country's money supply, the now also control monetary policy. They change the reserve ratio requirements for banks. Requiring banks to have higher reserve ratios per deposit forces the bank to lend less, decreasing the overall money supply. Allowing banks to decrease their reserve ratios per deposit allows the bank to lend more, which increases the overall money supply. The Fed also raises and lowers short-term interest rates to influence demand. Lower interest rates in crease economic demand and flow of currency, higher interest rates do the opposite. Lastly, the Fed buys issued securities from large banks or security dealers, increasing the money supply. If it sells these securities it is decreasing the money supply.

FOMC

Federal Open Market Committee decisions do not have to be approved by anyone in the executive or legislative branches of government. It does not receive funding appropriated by Congress.

Board of Governors

Members of the Board of Governors cannot be removed from office for their policy views once appointed to office.

Criticisms

Lack of transparency, bank bailouts, and independent control of domestic and foreign markets.

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