Federal Reserve System Summary

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Federal Reserve System Summary

Prior to 1913,

  1. US citizens feared centralized government

  2. Majority against centralized money

  3. Problem: continuous bank panics, bank failures, and bank frauds

Federal Reserve Act of 1913

  1. Original Intent

a. main purpose: lender of last resort

  1. decentralized banking system with 8 - 12 separate but cooperative central banks.

  1. Banking Acts of 1933 and 1935

  1. centralized power with Board of Governors

  2. board sets monetary policy

  1. Characteristics today

  1. centralized banking system independent of the central federal government

  2. three main groups

  1. Board of Governors

  1. 7 members appointed by the President, confirmed by the Senate to a 14 year non-renewable term

  2. Chairman and Vice-Chairman appointed by President for a 4 year renewable term

2. Federal Reserve Banks (FRB)

  1. 12 districts - 3 largest : NY, Chicago, San Francisco (50% of assets)

  2. 9 Board of Directors - 3 represent commercial banks, 3 represent business, 3 appointed by Board of Governors

    1. one Board of Director is selected to be President of the FRB

    2. quasi-public and banker's bank

3. Federal Open Market Committee (FOMC)

  1. membership includes the 7 Board of Governors and 12 Federal Reserve Bank Presidents

  2. influences money supply through changes in interest rates

  3. all Board of Governors and 5 of 12 FRB presidents vote on policy

  4. Chair of Board of Governors is also Chair of FOMC

  5. Meets 8 times/year (approx. every six weeks)

  1. Federal Reserve functions

influence money supply, issue currency, sets and holds bank reserves, lends to banks and thrifts, clears checks, supervises banks and works with Treasury as Government's bank
Additional information: For additional information about the Fed, go to www.federalreserve.gov, select About the Fed, under The Federal Reserve System select Frequently Asked Questions.

  • Select the Federal Reserve System

  • Select the Federal Open Market Committee (FOMC)

Release Date: December 13, 2005

For immediate release

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-1/4 percent.

Despite elevated energy prices and hurricane-related disruptions, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures.

The Committee judges that some further measured policy firming is likely to be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.

Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.

In a related action, the Board of Governors unanimously approved a 25-basis point increase in the discount rate to 5-1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

2005 Monetary policy

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