Download The Federal Reserve System and Monetary Policy

The Federal Reserve
System and Monetary Policy
Chapter 16-1
Monetary Policy
• Actions that the Federal
Reserve System takes
to influence the level of
real GDP and the rate
of inflation in the
economy
– In other words, what
does the gov’t does to
influence the flow of
money in America
Reserves
• Deposits that
a bank keeps
readily
available as
opposed to
lending them
out
Reserve Requirements
• The amount of reserves that banks are
required to keep on hand
– Why have this?
• Consumers and businesses need greater access
to funds to see them expand (grow the economy)
• Banks need a source of emergency cash to
prevent depositor panics that resulted in ‘bank
runs’---taking lots of money out of a bank
Head of the FED
 Benjamin
Bernake
leads the FED.

The Chairman of the
Board of Governors of
the Federal Reserve
System is the head of the
central banking system of
the United States and one
of the most important
decision-makers of
American economic policy.
Benjamin Bernake

Known as "Chairman of
the Fed", the Chairman is
the "active executive
officer“ of the Board of
Governors of the Federal
Reserve System, which is
an independent agency of
the United States
Government created by
statute as part of the
Federal Reserve System.
Benjamin Bernake
He took over in 2006 when
Alan Greenspan retired.
President George W. Bush
appointed him to the
position as ‘Head of the
FED’.
 President Barack Obama
re-nominated him in 2009
to continue as ‘Head of the
FED’ for another 4 year
term.

The FED was
created in 1913
with the
enactment of the
Federal Reserve
Act by President
Woodrow Wilson.
 The chairman is
appointed for a
four-year term by
the President of
the United States,
subject to
confirmation by
the Senate.

Organization of the FED
The chairman is one of seven members of
the Board of Governors of the Federal
Reserve System appointed by the
President and confirmed by the Senate
who have staggered terms of 14 years
each.
 The district of New York and four other
district bank Presidents makes up the 12
member group.

Head Chairman of the FED

By law, the Head of the FED reports
twice a year to Congress on the
Federal Reserve's monetary policy
objectives.

The Head Chairman of the FED
testifies before Congress on numerous
other issues, and meets periodically
with the Secretary of the Treasury.
Federal Open Market Committee

The Federal Reserve controls the three tools of
monetary policy--open market operations, the
discount rate, and reserve requirements.

The Board of Governors of the Federal Reserve
System is responsible for the discount rate and
reserve requirements.

The Federal Open Market Committee is
responsible for open market operations.
Continue--FOMC

Using the three tools, the Federal Reserve
influences the demand for, and supply of,
balances that depository institutions hold at
Federal Reserve Banks and in this way alters the
federal funds rate.

The federal funds rate is the interest rate at
which depository institutions lend balances at
the Federal Reserve to other depository
institutions overnight.
Federal Reserve Banks
CITY
–
–
–
–
–
–
–
–
–
–
–
–
LETTER
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
A
B
C
D
E
F
G
H
I
J
K
L
NUMBER
1
2
3
4
5
6
7
8
9
10
11
12
Which Federal
Reserve Bank
seal is on the
money in your
pocket?
The District Level of the FED
Member Banks

The member banks are the individual
banks located in the district. St. Clair
Banks here in town is a part of the 9th
district which reports to Minneapolis.
The End