The Fed Today
Summary
TLDRThe 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
💵 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.
📈 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.
🏦 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.
Mindmap
Keywords
💡Money
💡Federal Reserve Note
💡Federal Reserve System (the Fed)
💡Monetary Policy
💡Inflation
💡Recession
💡Board of Governors
💡Regional Federal Reserve Banks
💡Federal Open Market Committee (FOMC)
💡Securities
💡Banking Supervision
💡Direct Deposit
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
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