Premium Essay

The Federal Reserve

In: Business and Management

Submitted By cmill012
Words 2760
Pages 12
-The Federal Reserve’s control of money supply, Federal Reserve’s influence on interest rates, and the treasury department
Andrew Jackson once stated “The bold effort the present (central) bank had made to control the government ... are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.” (http://quotes.liberty-tree.ca/quotes_by/andrew+jackson). Since the Federal Reserve was established in 1914, the amount of power it has acquired over time has become very substantial. The Federal Reserve has a large control over the supply of money within the country, the Federal Reserve can control the flow of money in and out of the government, this is all because the fed controls the monetary base. There are two types of economist Monetarist Economists and Keynesian economists, In the following paragraph I will explain what the difference between these two types of economist are and how they believe the Fed controls the money supply. Not only does the Fed have a large influence on the money supply within the economy. The Federal Reserve also has a tremendous amount of power over the interest rates that are being used in today’s economy. Many of the ways that money supply can be altered can also heavily affect the feds fund rate in a predictable manner, the Federal Reserve uses that to their advantage even though they cannot set a rate for the Fed funds rate, they can hold it around a target percentage that they agree upon. In 1789 Treasury Department was established all due to an act of congress, The first Secretary of the Treasury was Alexander Hamilton. Alexander Hamilton is said to be one of the greatest economist of all time. He is credited with coming up with todays financial system that the Federal Reserve and the Treasury Department has been using.

The...

Similar Documents

Premium Essay

Federal Reserve

...This summary of the most recent report of the Federal Reserve shows steady growth in regards to the strength of the economy, but slightly less aggressive than last year. It is noted that payroll employment has increased by 210,000 on average per month in comparison to 260,000 last year. The unemployment rate dropped by a quarter percent to 5.3 percent in June. It is estimated that labor market resources are not being fully utilized because part time employees looking for full time remains high even though slightly decreasing. Consumer price inflation remains below the FOMC’s goal of 2 percent. The price index of consumer spending increased a quarter percent since last May. This in part is affected by lowered gas prices. Long run inflation estimates have remained stable and real gross domestic product has been little changed since last year in this first quarter. It is expected that inflation will rise to the expected level in the near future. Longer-term interest rates have increased since last year and auto and student loan balances continue to grow higher. This seems similar to the increase in housing loans in the prior decade. Hopefully the amount of default loans will not arise from poor bundling packages. Borrowing by lower rated businesses has increases rapidly as well. It has maintained to implement a low rate for the Federal Funds rate varying from 0-.25 percent. It plans to raise the federal funds rate once employment figures are up to par and the......

Words: 280 - Pages: 2

Premium Essay

Federal Reserve

...fedrThe Federal Reserve Policy from 1999 to the Present: The monetary policy of the United States has two basic goals that are outlined in a 1977 amendment to the Federal Reserve Act. These basic goals are: to promote "maximum" sustainable output and employment while promoting "stable" pricing [1]. It has become the responsibility of the Federal Reserve Board to try in: • Maintaining the stability of financial systems and contain risk that may arise in financial markets. • Regulating banking to ensure safety and soundness protecting the consumer from harm while using credit and banking services. • Overseeing the nation's payment systems providing financial services to financial institutions, the U.S. government, and foreign institutions. • Stabilizing world pricing and creation sustainable employment. While the Federal Reserve Board is in a constant challenge to perform these above tasks. The economy goes through business cycles where the output of goods and services and the employment rate of the country are above or below their long – running levels. The term "monetary policy" refers to what the nation's central bank or Federal Reserve happens to administer so that they may influence the amount of money and credit in the U.S. economy. What happens to this money or the credit during this time will directly affect the interest rates and the performance of the U.S. economy and its people. Stabilizing the U.S. economy has become paramount for the Federal Open......

Words: 1749 - Pages: 7

Premium Essay

Federal Reserve

...see how I could apply them to my personal life. As for week three it was interesting and ready to blast into week four. Brigett This week we covered some very important and complex topics. We started off by defining the uses of money and the ways that money is created by banks. We looked at the monetary policies; how they work, what they affect, and how they are affected by different actions. We discussed the roles of the Federal Bank, the reserves, and the fed funds rates. The most interesting topic for me was the increasing and decreasing of interest rates and how such as simple act can affect our economy, and ultimately, our decisions as consumers. I cannot honestly say how these topics will affect me in a Human Resources role, as our Business Analysts are the ones who are concerned with the economic factors. Nikki After reading the chapter concerning the federal funds rate that is one job I would not want to have. There are so many moving parts that it seems almost unrealistic to be able to determine an accurate operating target. The federal funds rate seems to affect our...

Words: 594 - Pages: 3

Premium Essay

Federal Reserve

...The Federal Reserve’s duties are to maintain the stability of the financial system, supervise and regulate banking institutions, conduct monetary policy and provide financial services to the government, such as operating the nation’s payments system. The establishment of the Federal Reserve System and how it conducts monetary policy, through interest rate variance, reserve requirement, money supply and several other programs, is fundamental to understanding the economy as a whole. The Federal Reserve Act, also known as the Glass-Owen Bill, was passed December 23, 1913 under President Woodrow Wilson (Goodseek.com). The Federal Reserve was born from the National Monetary Commission which proposed that the country needed an institution to deal with a poorly regulated banking system that was responsible for economic downturns (WFHumel.net). The original 1913 bill stated that the original act was “to have succession for a period of twenty years” and yet there have only been minor adjustments to the bill since that time (Goldseek.com). Federal Reserve is comprised of 3 divisions: the Board of Governors (BOG), the Regional Reserve Banks, and The Federal Open Market Committee (FOMC). The BOG guides the Federal Reserve’s policy actions, studies trends in the economy, and helps forecast the economic future, In addition, the BOG also participates in monetary policy-making on the FOMC, and is responsible for bank regulations and overseeing the operations of the Reserve Banks......

Words: 1870 - Pages: 8

Premium Essay

The Federal Reserve

...The Federal Reserve ECO/372 What is the Federal Reserve? _ The U.S. central bank whose liabilities serve as cash to the United States. ◦_ Six explicit functions. _ Composed of 12 regional banks _ Ran by the Board of Governors ◦_ Seven members. _ Federal Open Market Committee ◦_ The Fed’s chief body that decides monetary policy . Duties of the Federal Reserve • Conducting monetary policy (influencing the supply of money and credit in the economy). • Supervising and regulating financial institutions. • Serving as a lender of last resort to financial institutions. • Providing banking services to the U.S. government. • Issuing coin and currency. • Providing financial services (such as check clearing) to commercial banks, savings and loan associations, savings banks, and credit unions. Monetary Policy _ Policy of influencing the economy through changes in the banking system’s reserves that influence the money supply and credit availability in the economy. _ Three Tools ◦_ Open Market Operations ◦_ Discount Rate ◦_ Reserve Requirements _ Types of monetary policies ◦_ Expansionary ◦_ Contractionary Open Market Operations _ The Feds buying and selling of government securities. _ To expand the money supply, the Fed buys bonds. _ To contract the money supply, the Fed sells bonds. The Reserve Requirement _ The percentage the Federal Reserve Bank sets as the minimum amount of......

Words: 390 - Pages: 2

Premium Essay

Federal Reserve

...1. How does the Federal Reserve System control the money supply? The monetary base is related to the size of the Fed’s balance sheet; specifically, it is currency in circulation plus the deposit balances that depository institutions hold with the Federal Reserve. The Fed has essentially complete control over the size of the monetary base. The primary way the Fed controls the monetary base is through open market operations: buying or selling securities. To increase the monetary base, the Fed buys securities from any party and pays with a check. That check, written on the Fed, is deposited by a bank in its account with the Fed, thereby adding to its reserves and increasing the monetary base. The same process works for decreasing the monetary base: The Fed sells securities, getting a check from a bank in exchange. When the check is deposited, the bank’s balance at the Fed decreases The total supply of money consists of currency held by the public and checkable deposits balances of banks and other depository institutions. The money supply and the monetary base are linked by reserves, i.e., vault cash and deposit balances held at Federal Reserve banks While the Fed’s control over the size of the monetary base is complete, its control over the money supply is not. One major reason for this is banks can choose to hold the additional base money (i.e., deposit balances with the Federal Reserve banks) supplied by the Fed as excess reserves. 2. Why is the Fed sometimes......

Words: 333 - Pages: 2

Premium Essay

Federal Reserve

...Federal Reserve The FOMC (Federal Open Market Committee) is the monetary policy making body of the Federal Reserve System. The committee consists of twelve members; that are the seven members of the Board of Governors of the Federal Reserve System; the president of the Federal Reserve Bank of New York; and four of the remaining eleven Reserve Bank presidents, who serve a one year term on a rotating basis. The committee is responsible to formatting a monetary policy to help promote the economic growth, employment, stable prices, along with international trade and payments. The Fed tries to control the inflation by raising or lowering the interest rates and control the money supply. They try to estimate how the economy is going to be doing in the present moment and in the future. The Fed then compare the goals for the economy and inflation. If there seem to be a gap between the estimates and the goals the Fed then have to act swiftly to close the gap between the two. The Fed takes a look at the governments taxing and spending policies, the financial conditions at home and abroad to determine what will be the next step. The Fed buys up all of the government debt instruments to make an expansionary monetary policy. When the sale of the debt instruments are being sold this make a contradictory monetary policy. The Fed is also working on the fiscal policy as well to help the growth of the economy. The Fed is also working on the price stability for the monetary policy. By......

Words: 677 - Pages: 3

Premium Essay

Federal Reserves

...The Federal Reserve Bank As the United States moves towards a globally interdependent marketplace, the global monetary stakes have become much higher. The United States Congress established the Federal Reserve in the early 1900’s. A country’s debt can now become the world’s debt, and the role of the U.S. federal banking system is now considerably more under pressure and scrutiny than ever before. As we have been seeing with the current liquidity crisis in the U.S., and how it has affected U.K. and Asian markets, strong, comprehensive policy-making is now crucial to sustaining long-term economic viability. The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implementing policies intended to offset factors negatively affecting the general financial health of the country. Despite the growing need for quick, precise actions by the Federal Reserve System, the decision-making regarding the economy is often met with controversy. The recent bail out plan, passed by......

Words: 2694 - Pages: 11

Premium Essay

Federal Reserve

...Federal Reserve Arlisha James ECO/372 October 16, 2012 Jonathan Edelman Federal Reserve The purpose and function of money in today’s world market are still assets in which citizen’s exchange for goods and services received or for paying one’s creditors. Revenue (cash) is utilize in implemented to do four operations, which is store accounts, medium exchange, unit of account, and standard of deferred payments. The banking system that is used by the United States is called the central bank controlled via the Federal Reserve Bank. The Federal Reserve Bank is regularly checks out the economic health of the United States to maintain the monetary police to help it become steadfast. The Federal Reserve three tools of monetary policies to aid in the balance of the United States economy are discount policy, open market, and reserve requirement. The three tools, which are at the Federal Reserve disposal help the central bank to regulate the supply and demand, and to alter the level of deposits made into banks accounts. The Federal Reserve’s watches very closely at the direction of the economy because of the very low and slow recovery of the economy the Federal Open Markets (FOMC) committee has changed the way one maintains federal funding rate. “At the end of June the Federal Reserve concluded its purchases of long-term Treasury securities under the $600 billion purchase program announced in November 2010; that program was undertaken to support the economic recovery and......

Words: 713 - Pages: 3

Premium Essay

Federal Reserve

...The Federal Reserve Gabe Gambrell ECO/212 December, 18, 2010 The Federal Reserve The object of money is used as a form of payment around the globe. The major functions of money are store of value, unit of account, and medium of exchange. Money is an economic resource that enables one to obtain value and use as a function of exchange for a need or desire in the form of goods and services. Unit of account is the unit measurement in exchange for a service or good. And store value of money is saving, retrieving, and how money’s value is affected during inflation. America’s economy functions on fiat money. Fiat money is defined as paper currency made legal tender by a fiat of the government, but not based on or convertible into coin (Hubbard & O'Brien, 2010). In the following paper I will discuss the Federal Reserve (Fed), monetary policy, and the economy’s production and employment. The central bank of the United States is another name for the Federal Reserve System. The Federal Reserve System is necessary in order to control the economy. Without the Fed the United States economy would be unstable. The Fed helps with price stability, high employment, economic growth, and stability of financial markets and institutions. The Fed can change the interest rates on the money it lends to banks. A higher interest rate makes money more expensive, thus discouraging banks to lend. Lowering interest rates causes the opposite effect. The second tool the Fed has is the......

Words: 818 - Pages: 4

Premium Essay

Federal Reserve

...Abstract The signing of the Federal Reserve act by Pres. Woodrow Wilson on December 23, 1913 was the event in which the US Government essentially gave control of our country to large banks. With this law, Congress established a central banking system which would control the issuance of money. Since its creation there has been a debate as to whether or not the Federal Reserve Bank has too much power. The misconception is that the Federal Reserve Bank is a branch of the Federal Government in which it is not. America today is at the mercy of a privately owned central bank whose power is left unchecked which has inevitably led to corruption over its citizens and elected officials. Most Americans feel that the United States of America is democratic a leader of the “free” world. This is a well known assumption in theory. Our founding fathers had every intention in turning the new world into a developed democracy, and avoid any authority or one-party power. Our constitution demands that our government be “of, for and by the people,” to be divided into complex units and checks and balances, which are designed to prevent any potential power struggle by one specific branch. The constitution of the United States of America is the perfect blueprint for democracy in the purest form, with power and control in the hands of its citizens. Today, this is not the case. We gave up the right to print our own currency in 1913. The US Government gave the powers to a select few, who have......

Words: 2028 - Pages: 9

Premium Essay

Federal Reserve

...Abolish the Reserve For the future of the United States economy, the Federal Reserve needs to be put into congresses hands, audited, and ultimately abolished. Many U.S citizens do not pay attention to the economy. Many citizens just go about life wondering about why they have financial issues; people go straight to the president of the United States to blame. People never think of the big picture, yes the United States is in a ton of debt, but why? Moreover, how did the debt even start? That should be the question people need to be asking; instead of pointing fingers on a situation that the people know so little about. It all begins at the Federal Reserve, as Ron Paul said “To understand what is wrong with the Federal Reserve one must know the nature of money.” Background Few may ask, what is the Federal Reserve? Created in Dec. 23, 1913, the Federal Reserve, also known as the “FED” is the central banking system of the United States. Due to the financial panic in 1907, also known as the 1907 Bankers Panic, there was a huge financial scare for the U.S economy. The New York Stock Exchange fell about 50 percent from its peak in 1906, the following year the big panic arose. The economy fell dramatically and spread throughout the nation causing many banks to claim bankruptcy. Without a central bank to liquefy the market, many wealthy people including J.P Morgan, put large sums of their own money in the market, keeping the economy from going under. The following year, the......

Words: 3531 - Pages: 15

Premium Essay

Federal Reserve

...Federal Reserve Adam Green ECO/372 September 25, 2012 Caryn Callahan Federal Reserve Various factors affect the health of the United States economy, and there is a set of tools used by the Federal Reserve to control the effects of these factors along with current and future money supplies. This paper will review the influence of the Federal Reserve's economic tools on the United States' economy. One of these tools, the discount rate, is regulated by the Federal Reserve and can alter interest rates for lenders and borrowers. Monetary policy is a process to regulate the economy and money supply within the United States and adjusts to the state of the economy. Different economic times call for a change in policy and with this the money supply will follow suit. The discount rate, set by the Federal Reserve, is the interest rate for banks that borrow money from the Federal Reserve. This rate is usually set higher than the federal funds rate to discourage banks from borrowing directly from the Federal Reserve, unless all other options have been exhausted (Colander, pp. 348-349, 2010). Banks have the option to borrow from other banks and here is where the federal funds rate would come into play. The state of the economy guides the Federal Reserve in adjusting the discount rate, and this rate is an excellent tool to manage the money supply. If the economy is slow, a lower discount rate can jump start spending throughout the United States. One the other hand, rapid growth......

Words: 892 - Pages: 4

Premium Essay

Federal Reserve

...The Federal Reserve System I would like to start this paper by giving a clear definition of the federal reserve system: The Federal Reserve System most well known as “the Fed” is the central banking system and monetary authority of the United States. The Fed is made up of regional Federal Reserve banks and the Federal Reserve Board of Governors, which their main responsibility is to supervise and to examine the state-chartered member banks, also to regulate banks holding companies, and finally to be responsible for the conduct of the monetary policy. Furthermore, some of the most important duties of the Fed are to keep full employment and to maintain a low state of inflation (CPI= 2%). In order to clearly understand this concept and its purpose, it is also necessary to give a clear definition of the word money. As stated in the Webster dictionary, money is: “A commodity, such as gold, or an officially issued coin or paper note that is legally established as an exchangeable equivalent of all other commodities, such as goods and services, and is used as a measure of their comparative values on the market.” Money has three basic functions: a medium of exchange, a measure of value, and a store of value. Goods and services are paid for in money and debts are brought upon and then paid off in money. Without money, economic transactions would have to take place on a trading basis. In conclusion, money is a good thing for Humanity. It frees people from spending too much time running......

Words: 1551 - Pages: 7

Premium Essay

The Federal Reserve

...The Federal Reserve controls the economy of the United States through a variety of tools. They use these tools to shape the monetary policy of the United States in order to promote economic growth and reduce the rate of inflation and the unemployment rate. By adjusting these tools, the Fed is able to control the amount of money in the supply. By controlling the amount of money, the Fed can affect the macro-economic indicators and steer the economy away from runaway inflation or a recession. The Federal Reserve uses three main tools in order to control the money supply. The first tool is open-market operations. These operations consist of the buying and selling of government bonds to commercial banks and the public. Open-market operations are the most important tool that the Fed can use to influence the money supply (Brue). By buying bonds from the open market, the Federal Reserve increases the reserves of commercial banks which in turn will increase the overall money supply in the country. The opposite is true if the Fed sells bonds on the open market. By doing so, the Fed reduces the reserves of banks and, in turn, takes money out of the system. By being able to control how much money the commercial banks can lend, the Fed has a very powerful tool to adjust the economy. The second tool the Federal Reserve uses is the adjustment of the reserve ratio. The reserve ratio is the ratio of the required reserves the commercial bank must keep to the bank’s own outstanding......

Words: 1455 - Pages: 6