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The Federal Reserve and Monetary Policy

The Federal Reserve and Monetary Policy. Chapter 16. Roots of the FED – Central Bank. History of the FED: The Federal Reserve System. Several economic depressions of the 1800 and 1900’s caused American’s to urge the government for help.

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The Federal Reserve and Monetary Policy

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  1. The Federal Reserve and Monetary Policy Chapter 16

  2. Roots of the FED – Central Bank

  3. History of the FED: The Federal Reserve System • Several economic depressions of the 1800 and 1900’s caused American’s to urge the government for help. • Woodrow Wilson responded by signing the Federal Reserve Act in 1913.

  4. Creating the Fed Section 1 - The Federal Reserve System • Central bank—a nation’s monetary authority • monetary means “relating to money” • Federal Reserve System—central bank of the U.S., called the Fed • independent organization within government; established 1913

  5. The Federal Reserve and Monetary Policy • What the Fed Does • Monetary policy includes all the Federal Reserve actions that change the money supply in order to influence the economy. • Fight Inflation • Control interest rates • Lend money to banks • Inspect banks • Setting Monetary Policy • Inspect currency

  6. Duties of a Central Bank • Most countries have a central bank- oversees banking system • Holding Reserves: reserves set aside for loans from the banks funds • Assuring Stability: in national banking and monetary system • Control the way money is circulated • Supervise banks • Lending Money: unlike other banks it lends without the purpose of making money. To serve private banks rather than individuals.

  7. The Duties of the Fed • Fed uses regulation to protect bank customers, borrowers • Banking services for private banks and government include • holding deposits, transferring funds, making loans • Helps finance wars, stabilize economy in national emergencies • Regulates money supply; distributes currency—coins and paper money

  8. The Structure of the Fed • Fed not a single national bank; has national and regional structure • has some independence from political influence; accountable to Congress

  9. The Structure of the Fed • Board of Governors—sets policy; supervises operations of the Fed • chairman is most influential member and spokesperson • Ben Bernanke • 12 district banks carry out policy; serve as central bank for regions • Member banks: all nationally-chartered banks; state banks may apply • must buy district bank stock; cannot sell in open market

  10. The Structure of the Fed • Federal Open Market Committee—supervises government security sales • Federal Advisory Council—represents commercial banking industry • Consumer Advisory Council—advises on consumer protection laws on borrowing • Thrift Institutions Advisory Council—needs of savings institutions • thrifts not regulated by Fed; must meet reserve requirements; may borrow

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