What is the Federal Reserve?

The Federal Reserve is the central bank of the United States, created by Congress to provide a more stable monetary and financial system.

What is the Federal Reserve?

The Federal Reserve, more commonly referred to as "the Fed," is the central bank of the United States. It was created by the Congress to provide the nation with a more stable monetary and financial system.

Because America owns the Global Reserve Currency, the Fed is the most powerful bank in the world. It was created on December 23, 1913 when President Woodrow Wilson signed into law the Federal Reserve Act. The Fed supervises the nation's largest banks, conducts monetary policy, and provides financial services to the U.S. government.

The Federal Reserve System has three components:

  • The board of governors guide the entire Fed system. The seven total members direct monetary policy and set the discount rate and the reserve requirement for member banks.
  • The 12 regional Federal Reserve Banks work with the board to supervise the nation's commercial banks and implement monetary policy. They are based in Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas and San Francisco.
  • The Federal Open Market Committee (FOMC) oversees open market operations. The seven board members, the president of the Federal Reserve Bank of New York, and four of the remaining 11 regional bank presidents are members. The FOMC meets eight times a year.

The Federal Reserve System has four objectives:

  • Conducting the nation's monetary policy.
  • Maintaining the stability of financial markets.
  • Regulating banks and other financial institutions.
  • Providing financial services to the U.S. government.

Congress created the Fed's board structure to ensure some independence from political parties. Board members serve staggered terms of 14 years each. The president appoints a new one every two years, and the Senate confirms them. Jerome Powell took office as chairman of the Board of Governors of the Federal Reserve in February 2018, for a four-year term ending in February 2022, and he is expected to be re-elected by President Joe Biden.

With more officials raising eyebrows over Bitcoin, stablecoins and other digital assets like NFTs, the Federal Reserve says it is close to weighing in on the role crypto will have on the U.S. money supply.

Powell has said many times the main incentive for the U.S. is to launch its own central bank digital currency (CBDC) to eliminate use cases for crypto in America and around the world. But critics of CBDCs will point to their centralization, making them not real cryptocurrencies.