1. The Federal Reserve and Monetary Policy
Chapter 16

2. Roots of the FED – Central Bank

3. History of the FED: The Federal Reserve System
Several economic depressions of the and 1900’s caused American’s to urge the government for help.
Woodrow Wilson responded by signing the Federal Reserve Act in

4. Creating the Fed Central bank—a nation’s monetary authority
Section 1 - The Federal Reserve System
Creating the Fed
Central bank—a nation’s monetary authority
monetary means “relating to money”
Federal Reserve System—central bank of the U.S., called the Fed
independent organization within government; established 1913

5. The Federal Reserve and Monetary Policy
What the Fed Does
Monetary policy includes all the Federal Reserve actions that change the money supply in order to influence the economy.
Fight Inflation
Control interest rates
Lend money to banks
Inspect banks
Setting Monetary Policy
Inspect currency

6. Duties of a Central Bank
Most countries have a central bank- oversees banking system
Holding Reserves: reserves set aside for loans from the banks funds
Assuring Stability: in national banking and monetary system
Control the way money is circulated
Supervise banks
Lending Money: unlike other banks it lends without the purpose of making money. To serve private banks rather than individuals.

7. The Duties of the Fed
Fed uses regulation to protect bank customers, borrowers
Banking services for private banks and government include
holding deposits, transferring funds, making loans
Helps finance wars, stabilize economy in national emergencies
Regulates money supply; distributes currency— coins and paper money

8. The Structure of the Fed
Fed not a single national bank; has national and regional structure
has some independence from political influence; accountable to Congress

10. The Structure of the Fed
Board of Governors—sets policy; supervises operations of the Fed
chairman is most influential member and spokesperson
Ben Bernanke
12 district banks carry out policy; serve as central bank for regions
Member banks: all nationally-chartered banks; state banks may apply
must buy district bank stock; cannot sell in open market

12. The Structure of the Fed
Federal Open Market Committee—supervises government security sales
Federal Advisory Council—represents commercial banking industry
Consumer Advisory Council—advises on consumer protection laws on borrowing
Thrift Institutions Advisory Council—needs of savings institutions
thrifts not regulated by Fed; must meet reserve requirements; may borrow