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U.S. Politics

The Federal Reserve System

Brief Summary - What is the "Fed"?


On December 23, 1913, the Federal Reserve System, which serves as the nation's central bank, was created by an act of Congress. The System consists of a seven member Board of Governors with headquarters in Washington, D.C., and twelve Reserve Banks located in major cities throughout the United States.

Visits

Public visits to the Board are limited to pre-arranged group tours of the Eccles Building. Please call the Board's Office of Visitor Services, at (202) 452-3324, for further information.

The "Fed", its structure and responsibilities

The Federal Reserve Board of Governors is located in Washington, D.C.
The Federal Reserve System, also known as "The Fed," is the central bank of the United States. In its role as a central bank, the Fed is a bank for other banks and a bank for the federal government. It was created to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded. The Federal Reserve System is a network of twelve Federal Reserve Banks and a number of branches under the general oversight of the Board of Governors. The Reserve Banks are the operating arms of the central bank.

Congress created the Federal Reserve System on December 23, 1913, with the signing of the Federal Reserve Act by President Woodrow Wilson. The Federal Reserve System includes the Board of Governors and the twelve regional Reserve Banks. It took nearly a year from the time President Wilson signed the Act to determine the boundaries of the twelve Federal Reserve Districts and to establish the twelve regional Reserve Banks.

Board of Governors

The Board of Governors oversees the Federal Reserve System. It is made up of seven members who are appointed by the President and confirmed by the Senate. The full term of a Board member is 14 years, and the appointments are staggered so that one term expires on each even-numbered year. After serving a full term, a Board member may not be reappointed. If a member leaves the Board before his or her term expires, however, the person appointed and confirmed to serve the remainder of the term may be later reappointed to a full term.

The Chairman and Vice Chairman lead the Board. They are also appointed by the President and confirmed by the Senate. The nominees to these posts must already be members of the Board or must be simultaneously appointed to the Board. The terms for these positions are four years, but the Chairman and Vice Chairman may be reappointed for additional four-year terms, as long as their term as Board member is active.
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Twelve Regions

Under the Federal Reserve System, the United States is divided into twelve regions, or Districts. Each District has a Reserve Bank serving it. The twelve Reserve Banks are named after the city in which they are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

Responsibilities

The Federal Reserve’s responsibilities include:
  • conducting the nation’s monetary policy to help maintain employment, keep prices stable, and keep interest rates relatively low
  • supervising and regulating banking institutions to make sure they are safe places for people to keep their money and to protect consumers’ credit rights.
  • providing financial services to depository institutions, the U.S. government, and foreign central banks, including playing a major role in clearing checks, processing electronic payments, and distributing coin and paper money to the nation's banks, credit unions, savings and loan associations, and savings banks.


The Federal Reserve System also...
...conducts research on the U.S. and regional economies.
...distributes information about the economy through publications, speeches, educational seminars, and web sites.

Interest Rates

Interest rates are the prices that people pay to borrow money or are paid to lend money. Interest rates, like other prices, are determined by the forces of supply and demand. Higher interest rates provide incentives for people to save more and borrow less. Likewise, lower interest rates provide incentives for people to borrow more and save less. When interest rates rise, businesses are likely to invest less in capital and households are likely to spend less on housing, cars, and other major purchases. Lower interest rates are likely to cause businesses to invest more in capital and households to buy more big ticket items. In this way, interest rates affect the level of economic activity in the economy. The Federal Reserve System is able to affect the level of interest rates through its monetary policy.

Inflation

Inflation means that the general level of prices of goods and services is increasing. When inflation is rapid, the prices of goods and services can increase faster than consumers’ income, and that means the amount of goods and services consumers are able to purchase goes down. In other words, the purchasing power of money has declined. With inflation, a dollar buys less and less over time.

The FOMC tries to keep inflation low and stable in the long run because that helps the economy to keep growing over long periods of time. When inflation is low and stable, businesses and households can make better spending and investment plans because they do not have to worry about high inflation decreasing the purchasing power of their money.

FOMC

FOMC stands for the Federal Open Market Committee. The FOMC consists of twelve members--the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the other eleven Reserve Bank presidents. The four Reserve Bank presidents serve one-year terms on a rotating basis. Nonvoting Reserve Bank presidents attend the meetings of the Committee, participate in discussions, and contribute information about economic conditions in their District.

The purpose of the FOMC is to determine the nation’s monetary policy. The FOMC holds eight regularly scheduled meetings each year in Washington, D.C. At these meetings, the FOMC reviews economic and financial conditions and sets monetary policy. The term “monetary policy” refers to the actions taken by a central bank, such as the Federal Reserve, to help encourage a healthy economy. The actions taken influence the availability and cost of money and credit, which affect a range of economic variables, including output, employment, and prices of goods and services.

At each of its meetings, the FOMC decides whether or not to change its target for the federal funds rate, and if so, by how much. The FOMC also issues a statement after each meeting explaining its decision, and these statements contain some important information about the FOMC’s evaluation of the economy.

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Eccles Building as seen from Constitution Ave
Eccles Building as seen from Constitution Ave

Seal, South Foyer Eccles Building
Seal, South Foyer Eccles Building

   
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Buildings

The offices of the Board of Governors of the Federal Reserve System, the governing body of the nation's central bank, occupy three buildings:

The Marriner S. Eccles Federal Reserve Board Building, on Constitution Avenue between 20th and 21st Streets, NW, designed by Paul Phillipe Cret and completed in 1937;
The William McChesney Martin, Jr., Federal Reserve Board Building, on the north side of the Eccles Building, on C Street, NW, designed by H2L2 (Harbeson Hough Livingston and Larson), the successor firm to that of Paul Cret, and completed in 1974;
1709 New York Avenue, NW, located a few blocks northeast of the Eccles-Martin complex, designed by Vlastimil Koubek, erected as a commercial office building in 1972, and purchased by the Board in 2001.
 

Document Information
Source: Federal Reserve Board; magazineUSA.com
Last modified: 20070501
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