What is the Federal Reserve?

The Federal Reserve explained

Most people are familiar with the term Federal Reserve (commonly called “The Fed”), but many are unclear as to what it really is and/or does. Simply put, the Fed is the Central Banking System of the U.S. Managed by a Board of Governors appointed by the President of the United States, the Federal Reserve, created by the Federal Reserve Act (1913), functions as the manager of the money supply of the U.S.

Among the more technical responsibilities of the Fed are facilitating payment exchanges among various banking regions of the U.S., serving as a conduit to satisfy banks’ liquidity needs (available cash), and maintaining a “balance” between private banking interests and the responsibility of the government to protect the system and its consumers.

The Federal Reserve also has more well-known and volatile responsibilities. Their monetary policy manages the money supply, controls overall interest rates, maintains the stability of the banking system, and addresses banks’ problem issues. Actions of the Fed often strongly affect the global banking system and the economic well-being of the U.S. They are the “engine” that fuels or drives the U.S. economy.

For example, the Fed sets the “discount rate” that affects bank-to-bank transactions. This rate also often drives all other consumer and commercial interest rates for both deposit and loan accounts at banks and credit unions around the U.S.