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The Federal Reserve System The Fed is the central bank of the United States It was created by congress by the passage of the Federal Reserve Act in 1913 The Federal Reserve System is composed of the Board of Governors in Washington DC and twelve regional Federal Reserve Banks located in major cities New York St Louis Boston Philadelphia Kansas City Richmond Chicago San Francisco Minneapolis Atlanta Dallas and Cleveland throughout the United States Today the Federal Reserves duties fall into four different categories 1 conducting monetary policy 2 plays a major role in supervising and regulating banking institutions and protecting the rights of consumers in regards to credit rights 3 maintaining the overall stability of the financial system 4 providing miscellaneous financial services to foreign and domestic financial institutions the general public and the US government The Federal Reserve Bank derives its authority from congress and is considered to be independent due to the fact that its decisions do not have to be ratified by anyone in the executive or legislative branch of the government including the President Income and expenditures of the Federal Reserve banks and the Board of Governors are not subject to the congressional appropriation process The Feds earnings come primarily from interest received on the Reserve Banks holdings of US government securities and from fees they charge depository institutions for providing services such as processing and clearing checks Any net earnings are paid annually to the US Treasury In 2002 the Feds net earnings equaled 2449 billion The Feds actions have a significant effect on US interest rates and subsequently on the stock bond and other financial markets One of the most powerful tools that the Fed has to control inflation and keep the economy in check is the ability to increase or decrease the federal funds rate The Federal Reserve Act specifies that the FOMC should seek to promote effectively the goals of maximum employment stable prices inflation
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