Kavan Choksi discusses the Federal Reserve to help people on their road to financial literacy.
Kavan Choksi: Important Facts on the Federal Reserve
The Federal Reserve is known as the central bank of the United States. It is also arguably the most influential central bank in the world, according to Kavan Choksi. Like other major central banks, the U.S. Federal Reserve's main task is to provide safety and stability to the U.S. monetary and financial system.
Usually, news outlets call the Federal Reserve as the "Fed."
The Fed's obligations involve conducting monetary policy and regulating the country's banking sector. It also provides banking services as well as supervising the financial system. Through its actions, the Fed seeks to maintain inflation rates stable and low, boost economic growth, and ensure maximum employment.
Kavan Choksi also points out that market participants closely follow the Fed meetings as these can provide clues about future monetary policies of the country. In their decisions, the Fed is considered independent because the Fed's actions do not have to be ratified by the U.S. government.
Even with that, the central bank operates within a framework that describes the economic as well as the fiscal objectives of the government.
Kavan Choksi says that the Fed collects interest income from various sources. These sources include U.S. treasury bonds bought through its operations, fees for funds transfers, foreign currency investments, and interest on loans to depository institutions.
Following severe financial slumps in the early 20th century that led to business bankruptcies and bank failures, the U.S. Congress established an institution to help prevent those financial disruptions. Thus, the Fed was founded in 1913 by the U.S. Congress. President Woodrow Wilson then signed it into law.
Many may not realize that the Federal Reserve Act of 1913 was crucial in shaping America's banking infrastructure. The act established 12 regional Federal Reserve branches, each tasked with regulating banks and promoting economic stability within their regions. While all these branches hold significant power, it's no secret that the New York Fed is viewed as the most influential.
Kavan Choksi is a freelance business management consultant. He shares his knowledge of finance, business, and economics on his blogs, which can be found on this page.