THE FEDERAL RESERVE SYSTEM

Goals of the FED 1. Pursue policies that affect the cost and availability of credit (they change interest rates that will cause lending to increase or decrease) in order to promote full employment, price stability, and economic growth

Structure of the FED The Board of Governors The Board of Governors –7 members that serve 14 year terms (staggered terms) –appointed by President with Senate confirmation –Ben Bernanke is current FED chair –are the policy makers for the Federal Reserve System (you should make the point to the students that Board decisions don’t need anyone’s approval—separated the FED from politics—some think it gives too much power to too few people—no check on the FED’s power

Structure of the FED(cont’d) The Federal Open Market Committee The Federal Open Market Committee –12 members (7 of them are the governors) –they buy and sell government securities (when we get to the tools of the FED, the students will see that this is their most important tool)

Structure of the FED The Federal Reserve Banks The Federal Reserve Banks –12 banks each with branch banks (Houston is in the Dallas district) –they serve the need of commercial banks in their area –carry out decisions made by the Board of Governors

Services of the FED bank for banks (our banks keep their reserves with a FED bank) bank for banks (our banks keep their reserves with a FED bank) bank for the government (government needs a bank for all the checks they write) bank for the government (government needs a bank for all the checks they write) distribute paper currency (all the money the Bureau of Printing and Engraving prints is distributed through the FED banks and their branches distribute paper currency (all the money the Bureau of Printing and Engraving prints is distributed through the FED banks and their branches clear checks (although the FED has laid off many workers in this department --- structural unemployment—since check clearing is mostly electronic now clear checks (although the FED has laid off many workers in this department --- structural unemployment—since check clearing is mostly electronic now