Federal Reserve Essay

Submitted By paeslered51
Words: 1735
Pages: 7

The Federal Reserve System

We all like to think of the Federal Reserve as place where there has to be a big pile of money, but it isn’t as simple as that. It’s the central banking system of the United States; it operates through twelve Federal Reserve Banks. The Federal Reserve System was established in 1913 by the U.S Government to regulate the economy. 1913 is also when the United States implemented the monetary policy, which is a major part of the Federal Reserve. It is central bank for all the United States banks so basically the center of all banking, kind of like where the banks do their banking. Its reason is to control the supply of money and the cost and availability of credit. It also controls the daily supply and prices of money throughout the United States. When banks need money, they have to borrow from the Federal Reserve System. When a recession is threatening or approaching, the Federal System attempts to pump more money into the economy. Which helps to control the amount of money and credit within the United States. The Federal System also tries to tighten the supply of money and credit so that people will have less money to spend, when prices begin to rise and people start spending too much money. The Federal Reserve System works chiefly in four ways. One way is an open market operation, It can raise or lower the discount rate that charges banks for loans, It can raise or lower the size of the reserves that member banks must keep in the Federal Reserve banks against their deposits and thus tighten or expand credit, It can raise or lower the margin requirements for persons buying securities. The discount rate is the rate at which The Federal Reserve sells and lends money to banks. The open market operation is the most important tool of The Federal Reserve System money supply. Basically running the nation’s monetary policy in the economic pursuit of stable prices and full employment. Another way is to supervise and regulate banks to make sure we have complete safety of our nation’s banking and financial well-being to be able to protect credit right of consumers ("Federal Reserve Education"). The Federal Reserve also provides a financial service for the United States government, the public, and to foreign institutions that plays a huge part in our nation’s payment system. It also maintains a stable financial system for us when risk may arises and cause problems for our people financially.
What is the need for a central bank in the United Stats? Well, Congress passed the Federal Reserve Act to supervise and balance the financial needs of the country. Without a money manager the Nation’s financial system would be in a possible position to be subject to uneven growth. Banks accept money from people and keep that money safe until the depositor makes a withdrawal or write a check on their account. It keeps the flow of businesses rolling with currency, coin, and payments services. It operates at the center of the nation’s financial system. Money and credit is what the economy needs for businesses to be able to grow, for job creation to keep unemployment down, and to facilitate commerce. If money and credit expand too rapidly, businesses won’t be able to produce enough goods and services to keep up with increased spending. Workers may lose their jobs and a recession may result if the flow of money and credit contracts grows to rapidly. Credit has a major impact on whether the economy grows and thrives, or declines and fails. As the economy expands at the same rate The Federal Reserve System operates its goal of strengthening and stabilizing the system. The Fed promotes financial system stability by providing a substantial amount of liquidity. Its primary tool is changing the money supply by increasing or decreasing short – term interest rates. When people buy and sell securities the Federal System influences the health of the economy. The actions of The Federal Reserve System impact many…