The Fed- the central bank of the U.S.
• Federal Reserve Board
• Congress created it in 1913 to regulate banks
• Sets monetary policy
– Raise and lower interest rates
– Leads financial institutions to take actions
• Seven member Board of Governors
– Appointed by President
– Confirmed by Senate
• When the Fed raises the rate at which banks can
borrow money, the econ. cools down.
• It becomes more expensive to borrow money.
The Fed’s responsibility is to adjust the economy’s temp.
• When the Fed lowers the rate at which banks can
borrow money, the economy heats up.
• It becomes ‘cheaper’ to borrow money.
The Fed’s responsibility is to adjust the economy’s temp.
In 1996, the Chairman of the Fed, Alan Greenspan, said that the stock market
was showing “Irrational Exuberance.” The stock market in Tokyo, which was still
open as he spoke fell 3%. Hong Kong close down 3%. Frankfurt and London
fell 4%. The US markets opened down 2% at the start of trading the next day.
The Chairman has often been called ‘the most powerful person in Washington.’
“The Chairperson of the Federal Reserve
Board has more power over the U.S.
economy than does any other person,
including the President.”
ASSIGNMENT
• Write a one page essay in which you summarize the
Federal Reserve Board
• Include the following
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Name and background of current Fed Chair
Name and background of one of the previous two Chairs
Why the Fed was created by Congress in 1913
Explanation of how the seven members of the Board of
Governors maintain their political independence from
Congressional and Presidential demands related to the
economy
– Description of the job of the 12 Federal Reserve Banks