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					The Federal Reserve In Action
What is the Fed?
             Central bank of the
              United States

             Established in 1913

             Purpose is to ensure
              a stable economy for
              the nation
Federal Reserve System Structure
   Board of Governors

   12 Reserve Banks

   Federal Open Market
    Committee

   Advisory
    Councils/Committees
              Board of Governors
   Seven members
       Appointed by the
        president
       Confirmed by the Senate
       Serve staggered 14-year
        terms
       Independent of
        government so free of
        pressure
The Federal Reserve Chairman
   Ben Bernanke

   Appointed in 2006 as
    Chairman by Bush

   Reappointed in 2009 by
    Obama

   Chairman serve a four year
    term
12 District Banks
Where is my Fed?
    Advisory Councils/Committees
   Advise the Board of
    Governors on 3 things:
       General conditions of
        economy in each district
       Financial Institutions
       Issues related to consumer
        loans
Federal Open Market Committee
                 19 members
                     Seven Board of Governors
                     12 Bank Presidents
                 12 are voting members
                     Seven governors
                     Five presidents (New York and
                      four others on a rotating basis)
                 7 other nonvoting presidents
                  participate fully

                 Sets monetary policy buy
                  controlling money supply and
                  setting final interest rates
Functions of the Fed
             Regulates and
              Supervises banking
              system

             Governments Bank

             Monetary Policy
    The Fed’s Supervision & Regulation
   Oversees large commercial banks

   Makes sure all banks follow the
    laws and regulations

   Enforces consumer credit
    borrowing laws
       All loan details must be in writing so
        consumers are AWARE!
               Governments Bank
   Serves as bank for
    the U.S. Treasury

   Sells govt. bonds and
    Treasury Bills
       How govt. borrows $

   Manages the nations
    currency
       Gets old $ out and
        new $ in!
                 Monetary Policy
   Controlling the supply
    of $
       They can increase or
        decrease the supply
        Quickly!
       Monetary policy is
        effective and quick!
                  Monetary Policy
    $ supply =    interest rates

    $ supply =    interest rates

   $ supply and interest
    move in the OPPOSITE
    direction
    Key Tools of Monetary Policy
   Discount Rate
       The interest rate charged by the Federal Reserve
        to banks for loans
           Discount rate   =   $ supply =   interest rates



           Discount rate   =   $ supply =   interest rates
    Key Tools of Monetary Policy

   Reserve Requirements
       The amount of money banks must keep on
        reserve at the Fed
           Reserve Req.   =   $ supply =   interest rates



           Reserve Req.   =   $ supply =   interest rates
    Key Tools of Monetary Policy
   Open Market Operations
       Buying and selling govt. bonds and Treasury
        Bills
       Most important tool; directed by the FOMC
           Sell Bonds =   $ supply =   interest rates



           Buy Bonds =    $ supply =   interest rates
Goals of Monetary Policy

                         Full
                      Employment

 Stable Prices




                    Sustainable
                 Economic Growth
Effects of Low Interest Rates
                Generally, low interest rates
                 stimulate the economy because
                 there is more money available
                 to lend.
                    Consumers buy cars and houses.
                    Businesses expand, buy
                     equipment, etc.

                Why does the Fed lower
                 interest rates?
                    If inflation is in check, lower
                     rates stimulate economic activity,
                     thus boosting economic growth.
        Effects of High Interest Rates
   The Fed raises interest
    rates as an effective way to
    fight inflation.
       Inflation—a sustained rise in
        the general price level; that
        is, all prices are rising
        together.
   Consumers pay more to
    borrow money, dampening
    spending.
   Businesses have difficulty
    borrowing; unemployment
    rises.
    Review
   What are the three main roles of the
    Federal Reserve System?
   Where is your Fed?
   What are the goals of monetary policy?
   What happens when the Fed lowers
    interest rates? Raises interest rates?
   What is the name of the Fed’s monetary
    policymaking body?
   What is the discount rate?
           In Plain English Video
http://stlouisfed.org/education_resources/inplainenglishvideo.cfm

				
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