The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. It was created on December 23, 1913, after the passage of the Federal Reserve Act. The primary purpose of the Federal Reserve is to promote a stable and healthy economy by managing the country's monetary policy, supervising and regulating financial institutions, maintaining the stability of the financial system, and providing financial services to depository institutions, the U.S. government, and foreign official institutions. ## 3 Federal Reserve components 1. **Board of Governors**: The Board of Governors is a federal government agency that oversees the entire Federal Reserve System. It consists of seven members who are appointed by the President of the United States and confirmed by the [[Senate]]. Each member serves a staggered 14-year term, and the President designates one of the members as the Chair and another as the Vice Chair, both of whom serve four-year terms in those roles. 2. **Federal Reserve Banks**: There are 12 regional Federal Reserve Banks located in major cities across the United States. These [[central banks]] serve as the operating arms of the central banking system, carrying out the Fed's policies and providing various financial services to commercial banks and other institutions within their respective regions. Each regional bank is responsible for supervising and regulating banks within its district and implementing monetary policy through open market operations, discount lending, and reserve requirements. 3. **Federal Open Market Committee (FOMC)**: The FOMC is the primary decision-making body concerning monetary policy in the United States. It plays a crucial role in setting the direction of short-term interest rates and managing the country's [[money supply]]. The FOMC consists of 12 members, including the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 Reserve Bank presidents, who serve on a rotating basis. The Chair of the Board of Governors also serves as the Chair of the FOMC. ## Activities of the Federal Reserve The Federal Reserve System undertakes several primary activities to fulfill its mandate of promoting a stable and healthy economy in the United States. These activities include: 1. **Monetary Policy**: The Fed is responsible for formulating and implementing monetary policy, which involves managing the [[money supply]] and interest rates to achieve macroeconomic goals, such as low [[inflation]], full employment, and stable economic growth. The FOMC is the main decision-making body in charge of setting monetary policy. 2. **Bank Supervision and Regulation**: The Federal Reserve supervises and regulates a wide range of financial institutions, including commercial banks, savings and loan associations, and bank holding companies. This oversight helps ensure the safety and soundness of these institutions, protect consumers, and maintain the stability of the financial system. 3. **Financial Stability**: The Fed monitors and addresses potential risks to the financial system by analyzing systemic risks, working with other regulators, and developing policies to mitigate potential threats to financial stability. 4. **Payment System and Services**: The Federal Reserve plays a critical role in the nation's payment system by providing various financial services to depository institutions, such as check clearing, electronic funds transfers, and the distribution and processing of cash. It also operates the Fedwire Funds Service and the National Settlement Service, which are essential for the smooth functioning of the U.S. financial system. 5. **Lender of Last Resort**: In times of financial stress or crisis, the Federal Reserve can act as a lender of last resort by providing liquidity to financial institutions through the discount window, which is an emergency lending facility. 6. **Managing the U.S. Government's Account**: The Federal Reserve serves as the fiscal agent and bank for the U.S. government. It manages Treasury securities auctions, the [[national debt]], the Treasury Tax and Loan program, government securities services, economic data and research, and various other functions relating to the US economy.