One of the most influential organizations in our economy in the United States is the Federal Reserve Board. Many people fail to realize the significant impact that the decisions of the governors of this body have on the lives of citizens.
Why is it important to understand this agency’s role in your life? It affects how much you pay in interest on your mortgage, car loans, credit card balances, and other credit instruments affecting our country’s banking system.
The Federal Reserve Board (simply referred to as “the Fed”) was created on December 23, 1913 by the Federal Reserve Act. Seven governors lead the functions of the Board of Directors, with each governor appointed by the President and approved by the Senate. A full term on the board is fourteen years, with a governor changing from the board every two years.
The Federal Reserve’s Board of Governors is primarily responsible for serving the public interest by promoting the effective operation of the US economy. This fee is achieved through the regulation of the banking system and management of the economy to maximize employment and maintain stable prices of goods in the country.
One of the most powerful committees of the Federal Reserve Board is the Federal Reserve Open Market Committee. This committee has the task of maintaining orderly markets by reviewing economic and financial conditions, determining appropriate monetary policy and assessing the risks to the long-term goals of price stability and sustainable economic growth. Twelve members chair this committee, which consists of the original seven governors of the Federal Reserve Board and five presidents of the regional banks of the Federal Reserve, on which the President of the Bank of New York is a standing committee member.
What does all of this have to do with you, the citizen? Everything! Think about the credit card that you have in your wallet. Banks’ rates of interest on unsecured debt are typically higher than that on a mortgage secured with real estate. The Federal Reserve Board is the primary policy maker that sets the discount rate (the rate at which banks participating in the Federal Reserve System can borrow money from the Federal Bank) that is used as the basis for calculating lending rates.
The board of governors meets every other Monday to review economic data to monitor progress. Should the Fed wish to curb the money supply in the economy, which would dampen inflationary pressures, a simple hike in the discount rate will be considered.
Inflation is the invisible effect that all consumers feel when buying gas, food or other goods. The US dollar is directly affected by inflation in the economy and will buy less goods when inflation is higher.
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