The Fed Today

Summary

The Federal Reserve System, established in 1913, is the central bank of the United States, tasked with maintaining public confidence in the nation's monetary and banking system. It operates through a unique public-private structure, with a Board of Governors and twelve regional banks. The Fed's main goals are to ensure a stable economy with steady growth, full employment, and price stability. It achieves these by implementing monetary policy, supervising banks, and providing financial services such as check clearing and electronic payments.

Takeaways

• 💵 Money is based on trust, and the Federal Reserve Note is a symbol of that trust.
• 🏛 The Federal Reserve System, or the Fed, is the central bank of the United States, established in 1913 to maintain public confidence in the banking system.
• 📈 The Fed's mission has evolved to include fostering a stable, growing economy with steady employment and production, as well as stable prices.
• 🏦 Before the Fed, various organizations could print money, leading to over 30,000 types of currency in circulation and a lack of confidence in the financial system.
• 🏛️ The Federal Reserve Act of 1913 created a safer and more stable banking system by establishing the Fed as a decentralized central bank.
• 🌐 The Fed has a unique public-private structure with a Board of Governors and twelve regional Federal Reserve Banks to avoid centralized control of banking and monetary policy.
• 📉 The Federal Open Market Committee (FOMC) plays a key role in monetary policy by influencing the money and credit supply to maintain price stability and prevent inflation or recession.
• 💼 The Fed supervises banks to ensure they follow applicable laws and regulations, promoting the safety and soundness of the banking system.
• 💼 The Fed acts as the 'banker's bank', facilitating the transfer of funds and payments between banks, and is often referred to as such.
• 💳 The Fed is responsible for ensuring there is enough currency in circulation, issuing new currency, and maintaining its authenticity and condition.
• 🌐 The Fed's structure and practices are used as a model by emerging democracies to develop their own monetary policies for economic stability and growth.

Q & A

What is the primary function of the Federal Reserve System?

The primary function of the Federal Reserve System is to establish and maintain the public's confidence in the nation's monetary and banking system.

What is the official name of the 'twenty dollar bill' mentioned in the script?

The official name of the 'twenty dollar bill' is a Federal Reserve Note.

How has the role of the Federal Reserve System expanded since its creation in 1913?

Since its creation, the role of the Federal Reserve System has expanded to include responsibility for providing a stable, healthy, and growing economy.

What was the financial situation like in the United States before the Federal Reserve System was established?

Before the Federal Reserve System was established, there were over 30,000 different varieties of currency in circulation, with many states and banks printing their own money, leading to confusion and a lack of confidence in the financial system.

How does the Federal Reserve System prevent inflation and recession?

The Federal Reserve System prevents inflation and recession by stabilizing the nation's supply of money and credit through buying and selling government securities.

What is the Federal Open Market Committee and what is its role?

The Federal Open Market Committee is a part of the Federal Reserve System that meets to make decisions influencing financial markets, affecting the amount of money and credit available for the economy.

What is the relationship between the supply of money and price stability?

The supply of money is directly related to price stability. If the supply of money grows faster than the production of goods and services, it can lead to inflation. Conversely, if the supply of money decreases, it can lead to a decrease in demand for goods and potentially a recession.

How does the Federal Reserve System ensure the safety and soundness of banks?

The Federal Reserve System ensures the safety and soundness of banks through supervision and regulation, monitoring financial records, investment risks, and compliance with laws.

What services does the Federal Reserve System provide to financial institutions?

The Federal Reserve System provides services such as acting as the fiscal agent for the U.S. Treasury, maintaining Treasury accounts, facilitating the collection of federal taxes, issuing, servicing, and redeeming Treasury securities, and handling the nation's payments system.

How does the Federal Reserve System handle the circulation of currency?

The Federal Reserve System ensures there is enough currency in circulation by issuing currency and coin to banks, working with banks to ensure the currency is genuine and in good condition, and transferring funds from bank to bank in the form of checks and electronic payments.

What is the significance of the Federal Reserve System's role in electronic payments?

The Federal Reserve System's role in electronic payments is significant as it provides an advanced data communications network and the latest data processing systems to handle payments efficiently, safely, and cost-effectively.

Outlines

00:00

💵 The Role of the Federal Reserve System

The Federal Reserve System, often referred to as the Fed, is the central bank of the United States. Established in 1913, it was designed to maintain public confidence in the nation's monetary and banking system. The script explains the historical context of the Fed's creation, highlighting the chaotic state of the financial system prior to its establishment, where various entities could print money, leading to over 30,000 different types of currency in circulation. The Fed's mission is to provide a stable and healthy economy, focusing on price stability, full employment, and steady growth. It operates with a public-private structure, consisting of a Board of Governors and twelve regional Federal Reserve banks. The script also discusses the Fed's unique role in the economy, including its responsibility for monetary policy, banking supervision, and providing financial services.

05:01

📈 Monetary Policy and Its Impact on the Economy

This paragraph delves into the mechanisms of the Fed's monetary policy and its effects on the economy. The Federal Open Market Committee (FOMC) plays a critical role in making decisions that influence the money supply and credit availability, which in turn affect price stability. The script explains the concept of inflation, which occurs when the money supply grows faster than the production of goods and services, and recession, which happens when the money supply decreases, leading to a drop in demand for goods. The Fed uses the buying and selling of government securities to manage the money supply and stabilize the economy. The paragraph also touches on the Fed's supervisory role over banks, ensuring they follow regulations to maintain a stable banking system. Additionally, it describes the Fed's services in the nation's payment system, including check clearing and electronic transfers.

10:01

🏦 The Fed's Services to Financial Institutions

The final paragraph outlines the various services provided by the Federal Reserve to financial institutions. It discusses the Fed's role as the 'bankers bank,' facilitating the transfer of funds between banks, and its function as the fiscal agent for the U.S. Treasury. The script highlights how the Fed ensures there is enough currency in circulation and maintains its authenticity and condition. It also explains the Fed's involvement in check clearing, with the system handling over one-third of all checks cleared in the country. The paragraph further discusses the Fed's use of advanced technologies for electronic payments and its ongoing efforts to develop more efficient business processes. The script concludes by emphasizing the Fed's enduring mission to instill confidence in the nation's monetary and economic system, adapting to changes over time to support a healthy and growing economy.

Keywords

💡Money

Money is a medium of exchange that allows goods and services to be traded efficiently. In the video, money is described as the 'little pieces of paper' that inspire confidence globally. The script emphasizes the importance of trust in money, which is a fundamental concept in economics and the basis for the Federal Reserve System's role in maintaining a stable economy.

💡Federal Reserve Note

A Federal Reserve Note is the official name for the paper currency used in the United States. The script uses the example of a 'twenty dollar bill' to illustrate how these notes are part of a complex organization known as the Federal Reserve System. These notes are a symbol of the central bank's role in managing the nation's money supply.

💡Federal Reserve System (the Fed)

The Federal Reserve System, or simply 'the Fed,' is the central banking system of the United States. Established in 1913, its mission is to maintain the public's confidence in the nation's monetary and banking system. The video explains that the Fed has expanded its responsibilities over time to include fostering a stable, healthy, and growing economy.

💡Monetary Policy

Monetary policy refers to the actions of a central bank, such as the Fed, to control the supply of money and credit to maintain price stability. The video explains that the Fed's monetary policy focuses on influencing the amount of money and credit available to the economy, which in turn affects price levels and economic growth.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. The script mentions inflation as a situation where the supply of money grows faster than the production of goods and services, leading to rising prices.

💡Recession

A recession is a period of negative economic growth, typically characterized by a decline in GDP, high unemployment, and reduced industrial production. The video script uses recession as an example of an economic situation where the supply of money decreases, leading to decreased demand for goods and potentially falling prices.

💡Board of Governors

The Board of Governors is the main governing body of the Federal Reserve System. It is responsible for guiding most of the Fed's policies. The video script explains that the Board of Governors, along with the regional Federal Reserve Banks, forms the structure of the Fed, representing the public sector.

💡Regional Federal Reserve Banks

There are twelve regional Federal Reserve Banks in the United States, each serving a specific geographic area. The script mentions that these banks, along with their branches, are the operating arms of the Fed, providing services to banks and the public in their regions.

💡Federal Open Market Committee (FOMC)

The Federal Open Market Committee is a key component of the Federal Reserve System, responsible for making decisions about open market operations, which influence the supply of money and credit in the economy. The video script describes how the FOMC's decisions are made in a specific room, affecting financial markets both domestically and globally.

💡Securities

Securities, such as Treasury bills and bonds, are financial instruments representing investments in the U.S. government. The video explains that the Fed influences the money supply by buying and selling these securities in the open market, which helps to stabilize the economy and control inflation.

💡Banking Supervision

Banking supervision refers to the regulatory oversight of banks to ensure their safety and soundness. The video script mentions that the Fed, along with other agencies, supervises banks and bank holding companies to maintain a stable and healthy banking system that supports economic growth.

💡Direct Deposit

Direct deposit is a system where funds are electronically transferred into an account, often used for payroll. The script explains that many businesses and the federal government use direct deposit for payments, which is an example of the financial services provided by the Fed.

Highlights

Money is a symbol of trust, and the Federal Reserve Note is a prime example of this trust.

The Federal Reserve System, or the Fed, is the central bank of the United States, established in 1913.

The Fed's mission is to maintain public confidence in the nation's monetary and banking system.

In the 1800s, the U.S. financial system was chaotic with over 30,000 different types of currency in circulation.

The Federal Reserve Act of 1913 aimed to create a safer and more stable monetary and banking system.

The Fed is a decentralized central bank with a unique public-private structure.

The Fed's primary goal is a stable economy with higher employment, steady growth, and stable prices.

Monetary policy focuses on price stability and is implemented by the Federal Open Market Committee.

The Fed influences price stability by buying and selling government securities to control the money supply.

The Fed's monetary policy aims to prevent both inflation and recession by stabilizing the money supply.

The Fed supervises banks to ensure they follow rules that promote safety and soundness.

The Fed provides services to financial institutions, including acting as the fiscal agent for the U.S. Treasury.

The Fed ensures there is enough currency in circulation and that it is genuine and in good condition.

The Fed is often referred to as the bankers' bank because of its role in the nation's payments system.

The Fed handles over one-third of all checks cleared in the country.

The Fed uses advanced data communications and processing systems to handle electronic payments.

The Fed has evolved with the times, adapting to new technologies to conduct business more efficiently.

The Fed's ultimate purpose is to provide trust in the nation's money through price stability and economic growth.

Transcripts

money it certainly does make the world

go round and the reason it's able to do

so is that we trust these little pieces

of paper that's all it is it's just a

piece of paper around the globe there is

no piece of paper that inspires more

confidence take this one for example we

typically call it a twenty dollar bill

but officially it is a Federal Reserve

Note and every Federal Reserve Note that

you spend or receive is part of a

complex organization known as the

Federal Reserve System

hello I'm Charles Osgood the Federal

Reserve System or the Fed as it's

commonly called is the central bank of

the United States since its creation in

1913 the feds essential mission has

remained unchanged to establish and

maintain the public's confidence in our

nation's monetary and banking system

over time that original mission has

expanded to include responsibility for

providing a stable healthy and growing

economy but the confidence that exists

today did not exist during much of our

country's early history throughout much

of the eighteen hundred's almost any

organization that wanted could print its

own money as a result many states banks

even one New York druggist did just that

in fact at one time there were over

30,000 different varieties of currency

in circulation imagine the confusion not

only were there multitudes of currencies

some were redeemable in gold and silver

others were backed by bonds issued by

regional governments it was not unusual

for people to lose faith both in the

value of their currency and in the

entire financial system with many people

trying to withdraw their deposits at

once sometimes the banks didn't have

enough money on hand to pay their

depositors then when the funds ran out

the banks suspended payment temporarily

at some even closed people lost their

entire savings sometimes regional

economy suffered obviously something had

to be done and in 1913 something was and

that year President Woodrow Wilson

signed into effect the Federal Reserve

Act this Act created the Federal Reserve

System to provide a safer and more

stable monetary and banking system

the Fed was designed to be a

decentralized central bank the Fed

consists of two primary parts a Board of

Governors which guides most of the

policies of the Fed and twelve regional

Federal Reserve banks and their branches

which are the operating arms that

provide services to banks and the public

in their regions the Fed has a unique

public-private structure that operates

independently within the government but

not independent of it the Board of

Governors appointed by the President and

confirmed by the Senate represents the

public sector or governmental side of

the Fed the 12 Reserve Banks and the

local citizens on their boards of

directors represent the private sector

this structure provides accountability

while avoiding centralized governmental

control of banking and monetary policy

the regional Reserve Bank's work with

the Board of Governors to establish and

implement monetary policy for the nation

they provide a variety of financial

services and there is possible for

supervision of banks and bank holding

companies

of course all three roles are designed

to fulfill the feds main goal a stable

economy characterized by higher

employment and production steady growth

and overall stable prices no small feat

let's take a look to see how the Fed

accomplishes this

the foundation of the Fed rests upon

developing and implementing a sound

monetary policy for our country a

monetary policy whose primary focus is

on price stability but how does the Fed

influence price stability large part of

the answer occurs right here in this

room because you see it's here that

members of the Federal Open Market

Committee meet to make decisions that

influence financial markets both in the

United States and around the world these

decisions affect the amount of money and

credit that's available for our economy

all right you may be asking but what

does the supply of money have to do with

price stability what we see as the

supply of money grows and more money

becomes available the demand for goods

also grows when the supply of money

grows faster than the production of

goods and services prices usually begin

to rise this can lead to inflation on

the other hand if the supply of money

decreases the demands for goods also

decreases in the extreme case prices

could fall and manufacturers and

businesses could begin producing fewer

goods we refer to this situation as

recession the goal of the Fed's monetary

policy is to stabilize the nation's

supply of money and credit and to

prevent both inflation and recession the

proper way the Fed does this is by

buying and selling government securities

securities in the form of Treasury bills

and bonds represent investments in the

United States government and again it is

in this room that the Federal Open

Market Committee sets guidelines for the

sale and purchase of these securities on

the open market if the Fed determines

that there is too much money in

circulation a situation that could lead

to inflation it will sell securities

this takes excess money out of

circulation and helps to stabilize the

conversely if there is too little money

in circulation which could lead to a

recession the Fed buys securities this

puts money into circulation and again

stabilizes the economy every business

day the Fed gathers information to

determine just how much money needs to

be added or subtracted from the nation's

money supply these traders then make the

actual sales or purchases of securities

that affect the supply the result a

stable economy characterized by higher

employment and production steady growth

and overall stable prices

Congress establishes rules that govern

the supervision and regulation of banks

that operate in the United States the

main purpose to promote the safety and

soundness of banks which in turn

enhances the public's confidence in the

banking and financial system and it is

the Fed together with other bank

supervisory agencies but has the

responsibility of making sure these

rules are followed in its supervisory

role the Fed monitors banks and bank

holding companies that is companies that

own or control one or more banks and the

US operations of foreign banks federal

examiner's look at such items as

financial records the potential risk of

the banks investments and they also

check to see if the bank is following

applicable laws this supervision may be

done either off-site using automated

screening tools or on the bank's

premises in either case the bank

receives a rating if a potential problem

is discovered the Fed will require that

the bank take corrective action but

whether in its supervisory role or in

its regulatory role the feds aim is once

again to maintain a stable and healthy

banking system capable of supporting

economic growth

from its beginning the Fed has provided

a number of services to our country's

financial institutions the Fed plays a

vital role in the nation's payments

system that is transferring funds or

payments from one bank to another this

is done either as cash or checks and

electronic transfers because of this

role the Fed is often referred to as the

bankers bank one of its roles is to act

as the fiscal agent or as the bank for

the United States it maintains the u.s.

treasuries accounts pays checks drawn on

the Treasury facilitates the collection

of federal taxes and is responsible for

issuing servicing and redeeming Treasury

securities have you ever thought about

how much currency is actually in

circulation believe me it's a lot almost

half a trillion dollars including the

amount of our currency used in other

countries and it's up to the Fed to make

sure that there's always enough money in

circulation

this means issuing currency and coin to

banks and working with banks to ensure

that the currency that is in circulation

is genuine and in good condition the Fed

transfers funds from bank to bank in the

form of checks and electronic payments

when you write a check drawn on your

bank account the business receiving the

check will then deposit it in their bank

but the check by itself has no real

value in order to have value the funds

from your bank have to be transferred to

the bank receiving your check for

deposit the transfer of the value from

one banks account to the other banks

account is called

settlement 24 hours a day six days a

week the Fed is busy clearing checks the

Federal Reserve System handles over

one-third of all the checks that are

cleared in the country checks may be

scammed for important information at the

bank requests the Fed provides two types

of these services the transfer of funds

service is used to move large monetary

balances between nearly 8-thousand

institutions the automated Clearing

House or ACH service is used to move

Moeller and recurring financial

transactions like monthly bills instead

of having to write a check to the

mortgage or insurance company for

example the proper amount from your

account is electronically deducted and

then added to the account designated by

the mortgage or insurance company many

businesses use direct deposit for their

payroll payments to employees and the

federal government makes many payments

through direct deposit including those

to Social Security recipients and

military personnel monetary policy

Banking Supervision and financial

services once again these are the three

primary responsibilities of the Fed

responsibilities that determine how the

Fed helps to establish a strong economy

from 1913 until today the purpose of the

Fed has remained unchanged to instill

confidence in our monetary and economic

system but as the economy and financial

system have evolved and new laws and

practices have come about the way these

goals are achieved has changed

dramatically today the Fed clears over

20 billion checks a year and you imagine

clearing them like this it's almost

impossible but with electronic scanners

and automated equipment the process is

not only faster and more accurate it's

also less costly it's safer today the

Fed is continuing to develop new and

more efficient ways of conducting

business ways that depend on the use of

evolving technologies here for example

the Fed uses an advanced data

communications network and the latest

data processing systems to handle

electronic payments well as you've seen

that the Fed has been around for a long

time during that time a lot of things

have changed things will continue to

change brought as you've also seen the

Fed adapts to the times it does what's

necessary to foster a healthy growing

economy emerging democracies from around

the world use the Fed as a model model

to help them develop their own monetary

policy to provide for price stability

economic growth and better living

standards for their citizens because

when it comes right down to it the real

purpose of the Fed is to provide trust

in our nation's money

this requires price stability the

foundation were stable but vibrant and

growing he

to keep prices steady as we've mentioned

already keep jobs and production both

coming the job of the Fed all's done and

said is to keep the economy humming I'm

Charles Osgood thanks for watching

you