FACT WIKI · Institution
Federal Reserve
Federal Reserve
The Federal Reserve is the central bank of the United States. Its purpose is to provide the country with a safe, flexible and stable monetary and financial system.
Roles and functions
The Federal Reserve Act directs the Fed to promote maximum employment, stable prices and moderate long-term interest rates. This is commonly called the dual mandate because maximum employment and stable prices are understood to create conditions for moderate long-term interest rates.
Beyond monetary policy, Congress has tasked the Fed with promoting financial-system stability, the safety and soundness of individual financial institutions, safe and efficient payment and settlement systems, consumer protection and community development.
How it works
The FOMC comprises the members of the Board of Governors, the president of the Federal Reserve Bank of New York and four of the other eleven Reserve Bank presidents serving rotating one-year terms. All twelve Reserve Bank presidents participate in discussions, but only those who are committee members may vote on policy decisions.
The Federal Open Market Committee, or FOMC, conducts national monetary policy. Its regularly scheduled meetings conclude with a vote on the policy stance, including whether to adjust the target range for the federal funds rate.
Scope and limitations
The FOMC judges that inflation of 2 percent per year, measured by the annual change in the personal consumption expenditures price index, is most consistent with achieving both parts of its dual mandate.
The FOMC does not set a fixed numerical employment goal because maximum sustainable employment depends largely on changing nonmonetary factors. It assesses a broad range of indicators, including unemployment, underemployment, discouraged workers and the difficulty of finding jobs or qualified employees.
References
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