The Federal Reserve's attempt at stabilization policy is referred to as monetary policy. The committee meets more often if necessary. This committee meets about every six weeks to discuss monetary policy and decide what course of action to take. The committee is made up of 12 members, the seven from the Board of Governors plus five Presidents of the District Banks, who serve on a rotating basis, one of which is always from the New York Fed. (Federal Open Market Committee) is responsible for directing monetary policy. is responsible for directing monetary policy. Moreover, the New York Federal Reserve Bank conducts open market operations and foreign exchange stabilization. They regulate and supervise banks and bank holding companies, run a check-clearing service, do research and monitor regional and national economic activity, circulate the currency, sell savings bonds, and so on. The District Banks perform numerous functions in their respective areas. The United States has a long history of being fearful of centralization, and this organizational structure was a way to diffuse that power. The Twelve District Banks were initially designed to decentralize the power in the Federal Reserve. Many of the board members, however, do not serve their full terms and leave early to work in the private sector. The long terms try to assure stability and continuity in the Fed's policy decisions. The other six members of the Board of Governors are appointed to 14-year terms by the President and they must be confirmed by the Senate. The appointment is usually staggered with the election of the President that is, every two years either the President or chairperson comes up for election or reappointment. The chairperson is appointed to a four-year term by the President of the U.S. It consists of seven members including the chairperson-currently Ben Bernanke. The Board of Governors is the highest governing body of the Federal Reserve. The Board of Governors consists of seven members and is the highest governing body of the Federal Reserve. Figure 1 gives a breakdown of the main divisions within the Fed. The unique structure of the Federal Reserve is a consequence of history and politics. Before the Federal Reserve was created, banks had nowhere to turn to when they were in trouble. When a business needs money, it can often go to the bank for help. The Fed did not do enough to prevent its collapse. Many economists believe that the Great Depression was due mainly to the collapse of the banking system. The lender of last resort is probably the Fed's biggest responsibility. The role of the Fed is to conduct stabilization policy and to act as a lender of the last resort to banks to stabilize the financial system. The Fed must only report to the Congress periodically and operate within broad mandates. The Federal Reserve is chartered by the federal government but is largely independent of the authority of the Congress and President. central banks were set up in the 1800s but each lasted only a short time. The Federal Reserve (the "Fed") was founded in 1913 after four severe banking panics. History & Structure of the Federal Reserve The role of the Fed is to conduct stabilization policy and to act as a lender of the last resort to banks to stabilize the U.S. In this chapter, we examine the history, structure, and operations of the Federal Reserve. Its actions may affect everyday consumers whenever we purchase things on credit, take out a loan, or feel the effects of inflation or unemployment. It is probably the most powerful, yet least understood organization in the U.S. The Federal Reserve is the United States Central Bank. The Impact of Monetary Policy on the Economy.Impacts of Monetary Policy on the Economy.History & Structure of the Federal Reserve.Lecture Notes - The Federal Reserve and Monetary PolicyĬhapter Fifteen: Lecture Notes - The Federal Reserve and Monetary Policy
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