Over the next few entries in this article, we’re going to be discussing the Federal Reserve and the role that it plays in the market. When we’re done, you’ll have a more thorough knowledge of the American economy and thus will be better prepared as an investor to make smart decisions about your money.
Federal Reserve Purpose
Simply put, the Federal Reserve was created in 1913 as a means to keep an eye on the United States’ official monetary policies and ensure that they were in keeping with the country’s best interest. In addition, before the Federal Reserve was instituted, people were reluctant to make use of the banking system due to having no real guarantee that their money would be there when they went to withdraw it.
The Federal Reserve is led by a board of government appointed individuals, seven of them to be precise. They act as the governing head of the whole institution and are centrally located in Washington. Below them are twelve Federal Reserve Banks, which are spread out across the United States and located in some of the country’s most populous cities. These individual branch banks accomplish much of the work of the Federal Reserve by analyzing local markets. They also generate income themselves by acting as traditional banks.
Federal Open Market Committee
The Federal Reserve also operates a board known as the Federal Open Market Committee, which is the branch of the Reserve that makes policies based on the research and findings of the other branches. National interest rates and other monetary policies of similar scope are decided upon at meetings of the Federal Open Market Committee, in order to establish a balance between taxation and inflation that is beneficial to all parties involved.
Of course, these are just the big parts of the Federal Reserve. If we want to be totally accurate, we should also say that each of the individual banks you are likely to do business with are also allied to the Federal Reserve, making it a truly nationally operating institution.
Next time, we’ll discuss some of the particular obligations of the Federal Reserve.
See you next week for part 3 of the Federal Reserve.
Sean Rasmussen
The Bullhunters Guide
Universal Wealth Creation © 2004 – 2008
{ 3 comments… read them below or add one }
Thank you so much for the information about the role of the federal reserve. I am a special education teacher for behaviour disordered students and want to apply some of the ideas from the “what I didn;t learn at school and wish I had” The book is great and wanted t say that the principles of money and finance can be learnt, even by hard heads such as our students. Just wanted to say thank you for the education, just great!
Kind Regards,
Damian
Hi Sean,
Thanks for the overview of what the Federal Reserve Bank does and who controls it. I’m a little surprised that some of the individual branches of the Federal Reserve act as a real fully functioning bank.
Is it this way in Australia too? I would have thought that would impact the decisions they made at a higher level.
As more of the information about the Federal Reserve Bank comes to light I can see how just by its enormity in presence alone it has a strangle hold on the American government.