Federal Reserve System

Definition

The term Federal Reserve System refers to the central bank of the United States. The Federal Reserve provides a number of services, including ensuring the economy of the United States operates in an effective manner.

Explanation

Also known as the Federal Reserve and the Fed, the Federal Reserve System was created in 1913 as part of the Federal Reserve Act, which was promulgated following a number of disruptive financial events. Both the Great Depression and the Great Recession resulted in an expansion of the Federal Reserve's role in protecting the United States' economy.

The Federal Reserve provides for the following functions, overseen by its Board of Governors:

  • Regulates U.S. monetary policy, with the objective of maximizing employment, stabilizing prices, and moderating long-term interest rates
  • Stabilizes financial systems while seeking to minimize risk through active monitoring of these financial systems
  • Ensures the safety and stability of individual financial institutions, while monitoring their impact on the entire financial system
  • Facilitates the efficiency of payment and settlements occurring in the banking industry
  • Fosters consumer protections through direct examination, including conducting research and analysis of consumer trends and economic activity

Related Terms

money supply, Federal Open Market Committee, Board of Governors, Federal Reserve Bank, Federal Reserve Funds