What is the federal reserve?
The Federal Reserve ("Fed") is the central bank of the United States of America. The Fed was created by Congress to provide a more stable and flexible monetary and financial system. Congress set up the Fed in 1913 when President Wilson signed it into law.
The Fed is split into 12 districts across the US, with a Federal Reserve Bank in each one, while the Board of Governors resides in Washington, and can be considered the Head Office. The board, which consists of seven governors, is currently lead by Chairwoman Janet Yellen and is responsible amongst other things for deciding monetary policy.
Five members of the board including the Chair are appointed by the President of the US, while the other two members are, by virtue of their office, the Secretary of the Treasury and the Comptroller of the Currency.
Federal Reserve Board of Governors
The Fed’s primary objective is to influence money and credit conditions in the search for full employment and low inflation by conducting an adequate national monetary policy. It achieves this through various policy tools at its disposal such as interest rates and money supply. The Fed also has other responsibilities which include the supervision and regulation the nation’s banks and financial institutions, containing systemic risk in financial markets, playing a major role in overseeing the national payment system, and providing certain services to foreign official and national US institutions.
Who owns the federal reserve?
The Federal Reserve System is operated via the 12 Federal Reserve Banks, established by Congress. Each Bank issues shares and ownership, an obligation for member banks within the system. The banks are operated as nonprofit organizations, and their shares of common stock cannot be used as a security, traded or sold. Congress does not fund the Fed, nor does Congress or the President have any say in monetary policy decisions made by the Fed. However, the Fed’s independence in policy decision making is still subject to the oversight of Congress.
FED raises benchmark interest rates
The Fed raised its benchmark interest rates by a quarter of a percentage point to between 0.25 and 0.50 percent, after 9 years of an unchanged and stable very low interest rate.
Dodd-Frank Reform and Consumer Protection Act 2010
July 21, 2010
In response to the 2008 financial crisis, Congress enacts a series reforms aimed at protecting the financial system from the repetition of a similar event. The Dodd-Frank Act is one such reform legislation, giving the Fed more authority to scrutinize the activities of non-bank counterparts.
Ben Bernanke Appointed (Second time)
August 25, 2009
President Barack Obama announced he would nominate Bernanke to a second term as chairman of the Federal Reserve.
FED cut rates by 0.25%
December, 11, 2007
Due to Sub-prime mortgage crisis, many disappointed individual investors who expected a higher rate cut: the Dow Jones Industrial Average dropped by nearly 300 points at its close that day.
Sub-prime mortgage crisis begins
December, 11, 2007
The sub-prime mortgage crisis causes the failure of various lenders, including two governmental entities, Fannie Mae and Freddie Mac. In an attempt to stabilize the financial system and alleviate crisis, the Fed applies an unconventional form of monetary policy known as ‘quantitative easing.’ This program consists of buying large quantities of mortgage-backed securities and Treasury bonds.
Federal Reserve ceased to make public M3
The costs of collecting this data outweighed the benefits. M3 includes all of M2 (which includes M1) plus large-denomination ($100,000 +) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks as well as at all banks in the United Kingdom and Canada.
Ben Bernanke Appointed
Ben Bernanke was appointed by President George W. Bush as the chairman of the Federal Reserve.
Federal funds rate was lowered to 1.00%
June 25, 2003
Its lowest nominal rate since July, 1958, when the overnight rate averaged 0.68%
Rates were cut to 1.75
Many interest rates went below the inflation rate.
Financial Service Modernization Act
November 12, 1999
The Financial Service Modernization Act allows for the consolidation of the banking industry across financial sectors and affords the Fed new powers. The main purpose of this act is to create Financial Holding Companies (FHC) under the Fed’s oversight.
Fed Fund rate reaches highest levels historically to date
Battling elevated unemployment and rampant inflation, the Fed is forced to raise the Fed funds rate to its highest level on record at 19.04%.
Paul Volcker was nominated
President Jimmy Carter nominates Paul Volcker as Chairman of the Federal Reserve. Volcker is later re-appointed for a second term by President Reagan. Volcker’s nomination comes at a time of excessive inflation and high unemployment. His tenure provokes widespread political protests due to his restrictive monetary policy aimed at curbing inflation. His policy decisions lead to record high Fed fund rates.
Fed Fund Interest Rates reach 12.92
November 16, 1977
The Fed Reform Act is instrumental in shaping the Federal Reserve system. Congress is motivated to extend Fed transparency and accountability, while at the same time, making the Fed's objectives more explicit. Through the Act, the Fed is directed to pursue a mandate of, full employment, modest price increases, and low long-term interest rates.
Fed Fund Interest Rates reach 12.92
The economy begins to experience an unusual phenomenon of high inflation and unemployment triggering a tightening of monetary policy by way of interest rates hikes.
Bank Holding Act
May 9, 1956
The Bank Holding Act entrusts the Fed with increased oversight authority of banks.
The 1951 Accord
The 1951 Accord, also known simply as the Accord, was an agreement between the U.S. Department of the Treasury and the Federal Reserve that restored independence to the Fed.
During World War II, the Federal Reserve pledged to keep the interest rate on Treasury bills fixed at 0.375 percent. It continued to support government borrowing after the war ended, despite the fact that the Consumer Price Index rose 14% in 1947 and 8% in 1948, and the economy was in recession.
President Harry S. Truman in 1948 replaced the then-Chairman of the Federal Reserve Marriner Eccles with Thomas B. McCabe for opposing this policy, although Eccles's term on the board continued for three more years.
The reluctance of the Federal Reserve to continue monetizing the deficit became so great that, in 1951, President Truman invited the entire Federal Open Market Committee to the White House to resolve their differences. William McChesney Martin, then Assistant Secretary of the Treasury, was the principal mediator. Three weeks later, he was named Chairman of the Federal Reserve, replacing McCabe.
Gold Reserve Act
January 30, 1934
The Gold Reserve Act transfers ownership of all gold to the Unites States Treasury. This is an obligation for all individuals and institutions, including the Fed. The act also regulates the use, storage and transportation of Gold.
January 22, & February 27, 1932
The Reconstruction Finance Corporation Act and Banking Acts allow the Fed to serve as lender of last resort to member banks.
February 25, 1927
To alleviate the risk of renewal, Congress re-charters the Banks into perpetuity, relaxes laws on national banks operation of branches and levels the playing field by giving member banks the same freedom as non-member banks.
Federal Reserve Banks open for business
November 16, 1914
12 Cities are selected and assigned a district to host the Federal Reserve Banks. The cities are New York, Chicago, Boston, Philadelphia, Richmond, Atlanta, St Louis, Dallas, Kansas City, Minneapolis, San Francisco and Cleveland.
Federal Reserve Established
After months of hearings, amendments, and debates the Federal Reserve Act passed Congress in December, 1913. The bill passed the House by an overwhelming majority of 298 to 60 on December 22 and passed the Senate the next day by a vote of 43 to 25.
The official federal reserve website is www.federalreserve.gov