Federal Reserve System | USAGov (2024)

FAQs

What does the Federal Reserve System do? ›

Its core responsibilities include setting interest rates, managing the money supply, and regulating financial markets.

The Board of Governors--located in Washington, D.C.--is the governing body of the Federal Reserve System. It is run by seven members, or "governors," who are nominated by the President of the United States and confirmed in their positions by the U.S. Senate.

The Reserve Banks are decentralized by design and are located in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.

The Federal Reserve System is not "owned" by anyone. The Federal Reserve was created in 1913 by the Federal Reserve Act to serve as the nation's central bank. The Board of Governors in Washington, D.C., is an agency of the federal government and reports to and is directly accountable to the Congress.

The Fed has a major influence on your purchasing power

The Fed's interest rate decisions are bigger than just influencing the price you pay to borrow money and the amount you're paid to save. All of those factors have a prevalent influence on your purchasing power as a consumer.

Critics have questioned its effectiveness in managing inflation, regulating the banking system, and stabilizing the economy. Notable critics include Nobel laureate economist Milton Friedman and his fellow monetarist Anna Schwartz, who argued that the Fed's policies exacerbated the Great Depression.

The Federal Reserve is not funded by congressional appropriations. Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.

The Federal Reserve Act requires the Reserve Banks to remit excess earnings to the U.S. Treasury after providing for operating costs, payments of dividends, and an amount necessary to maintain surplus.

The Federal Reserve creates money when it decides that the economy would benefit by it doing so. It creates money not by printing currency but by effectively adding funds to the money supply. The Fed does this in various ways, including changing the target fed funds rate with the goal of affecting other interest rates.

Does the president control interest rates? ›

Though presidents can't control interest rates directly, they can discuss their stance on current monetary policy and its impact on rates. But this can be a touchy topic. “Institutionally, the Federal Reserve is very protective of its independence because that independence helps it achieve its mandate,” Fulford said.

The Federal Reserve monitors financial system risks and engages at home and abroad to help ensure the system supports a healthy economy for U.S. households, communities, and businesses.

U.S currency is produced by the Bureau of Engraving and Printing and U.S. coins are produced by the U.S. Mint. Both organizations are bureaus of the U.S. Department of the Treasury.

The process for selecting a Federal Reserve Bank president is set forth in the Federal Reserve Act. Subject to the approval of the Federal Reserve Board of Governors, the president is appointed by the Reserve Bank's Class B and C directors (those directors who are not affiliated with a supervised entity).

State-chartered banks may ultimately decide to refrain from membership under the Fed because regulation can be less onerous based on state laws and under the Federal Deposit Insurance Corporation (FDIC), which oversees non-member banks. Other examples of non-member banks include the Bank of the West and GMC Bank.

The Federal Reserve is not funded by congressional appropriations. Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.

The U.S. Treasury and the Federal Reserve are separate entities. The Treasury manages all of the money coming into the government and paid out by it. The Federal Reserve's primary responsibility is to keep the economy stable by managing the supply of money in circulation.

Treasurys and other securities, on the other hand, are considered assets. Securities held outright make up about 94 percent of the Fed's total balance sheet. Nearly two-thirds are Treasury securities, including shorter-term Treasury bills, notes and bonds. Mortgage-backed securities make up another almost one-third.