Federal Reserve Bank

Federal Reserve Bank

Introduction

It is in common knowledge of the presence of a government body that takes care of the economy of a country- a nucleus of the economy of the country who makes policies for the smoothness of the economy. This role in United States is conducted by the Federal Reserve, which is commonly known as The Fed. It is the state bank of United States which funds the U.S. government and makes rules and regulations for the financial institutions. The Fed is considered as the most powerful organization in the world as it looks over the most powerful economy in the world (www.federalreserve.gov).

The role of the Fed is to regulate economic and monetary policies that may affect the individuals and the institution in the U.S. and all around the globe. The Fed was form in the year 1913 by the U.S. Congress. The Fed is an independent entity, but the Congress does oversee it. The decisions taken by the Fed are not to be ratified by the government or the President, but they can be reviewed by the Congress (www.federalreserve.gov).

Discussion

The main tools of Fed which influences the economy are:

Open-Market Operation

The Fed influences the banking system and the economy by buying and selling the US government securities which are being traded in the financial markets. These decisions eventually have an effect the interest rates (www.cfr.org).

Setting the Discount Rate

The Fed sets the discount rate that the banks have to pay the short term loans that they have applied for from the Federal Reserve Bank. This discount rate is lower as compared to the rate on the federal funds, but both are related. The discount rate indicates the market about any possible changes in the monetary policies by the Fed and gives them the heads up (www.cfr.org).

Setting Reserve ...