The Federal Reserve System

The Federal Reserve System

Being America’s central Bank, the Federal Reserve System’s primary purpose is maintaining economic stability in the United States. It exists to execute a number of functions, two of which are to handle monetary policy in the country and to regulate the banking sector. Regarding monetary policy, the Federal Reserve System makes decisions on matters such as employment, price stability, and interest rates. Such decisions have vital impacts on the economy because they help to keep inflation in check and also stimulate investment (Corporate Finance Institute, 2021). At the same time, sound monetary policies are beneficial to citizens because they help in promoting employment while also protecting citizens against exploitation through extremely high interest rates. The second function of regulating banking institutions aims at promoting soundness as well as safety in financial institutions (Board of Governors of the Federal Reserve System, 2020). Without doubt, this kind of supervision is beneficial to citizens as it insulates them against exploitation by banks. To the U.S. economy, regulation of financial institutions by the Federal Reserve System ensures that financial institutions do not engage in activities that could be detrimental to the economy.

Response to Demetra

This is such a concise response to the question and an amazing exposition of the impacts of the Fed’s decisions on the U.S. economy and individual citizens. About the developing of monetary policy, you could perhaps add that besides regulating interest rates, the Fed manages commodity prices and employment.

Response to Catherine

Thanks for a great description of the Fed’s function of conducting monetary policy; it clearly explains the impact on the economy and citizens. There are several other functions of the Fed, too. Could you highlight one more please as per the assignment instructions?

References

Board of Governors of the Federal Reserve System. (2020). Purposes & functions. www.federalreserve.gov/aboutthefed/pf.htm

Corporate Finance Institute. (2021). What is the Federal Reserve Central Bank (The Fed)? https://corporatefinanceinstitute.com/resources/knowledge/finance/federal-reserve-the-fed/

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