Glossary
Federal Reserve
The central bank of the United States, which sets monetary policy, supervises banks and aims for maximum employment and stable prices.
On this page
The Federal Reserve, usually called the Fed, is the central bank of the United States. Congress created it with the Federal Reserve Act of 1913 after a series of banking panics. Its decisions on short-term interest rates and on the size of its balance sheet influence borrowing costs, the dollar, inflation and asset prices worldwide, which is why markets parse every Fed statement and speech.
How it is organized
- Board of Governors in Washington: seven members nominated by the President and confirmed by the Senate for staggered 14-year terms. The chair and vice chairs serve four-year terms in those roles.
- Twelve regional Reserve Banks (New York, Chicago, San Francisco and others), which supervise banks in their districts, run payment services and gather local economic information.
- The Federal Open Market Committee, which combines the governors and Reserve Bank presidents to set monetary policy.
What it does
Congress gave the Fed a "dual mandate" of maximum employment and stable prices (the statute also names moderate long-term interest rates). Since 2012 it has defined price stability as 2% inflation over time, measured by the PCE price index. Its tools include the federal funds rate target, interest on reserves, large-scale asset purchases (quantitative easing) and their reversal (quantitative tightening), and emergency lending facilities. It also supervises large banks and operates payment systems such as Fedwire and FedNow.
The Fed is independent in its policy decisions but accountable to Congress, where the chair testifies twice a year.