The Federal Reserve is central to our modern economy and manages the national financial system. You will hear a lot in public discussion related to the Federal Reserve, the interest rate, policy and the global economy. The Federal Reserve seeks to manage those influences and stresses to create stable growth. Some believe the Federal Reserve is helpful and others feel it is less helpful. Let us go through an overview of what they do and who they are.
What Do they Do?
Because of the risks of past "bank runs" each bank is required to have a certan amount of cash in reserve. If they have excess they can lend to other banks using the Federal Funds Rate. What is the Federal Funds Rate?
The concept of the Federal Reserve System has a long history that becomes more formalized because of the National Banking Act of 1863, 1893 a bank panic, The Aldrich-Vreeland Act of 1908 that proposed a banker run system, and in 1913 the Federal Reserve Act offered a central bank that created a compromise with private banks and public sentiment. The History of the Federal Reserve.
FOMC can lower the interest rate to speed the economy, raise the rate to slow, or stay the same. They try and meet the Target Federal Funds Rate as their ideal rate for the economy. Higher rates help curb inflation and lower rates can speed the economy. There are always costs and tradeoffs when we interfere in normal market processes.
The concept of the Federal Reserve System has a long history that becomes more formalized because of the National Banking Act of 1863, 1893 a bank panic, The Aldrich-Vreeland Act of 1908 that proposed a banker run system, and in 1913 the Federal Reserve Act offered a central bank that created a compromise with private banks and public sentiment. The History of the Federal Reserve.
FOMC and Interest:
FOMC meets 8 times a year to disucess rates and policy through a team of experts in the field. It is their collective decision that sets that rate. The Federal Funds rate impacts things like credit cards and home loans as well as the stock market as well.
FOMC can lower the interest rate to speed the economy, raise the rate to slow, or stay the same. They try and meet the Target Federal Funds Rate as their ideal rate for the economy. Higher rates help curb inflation and lower rates can speed the economy. There are always costs and tradeoffs when we interfere in normal market processes.
The Complexity of Managing the Market
There are risks associated with adjusting the rate because of the complexity of the modern market. Some have argued that we may need updated economic models that can handle and manage the digital era and create stronger predictions. As we change elements (i.e. technology) it will have an impact on our how the activities in the economy function and they will create new patterns of movement of goods, choices and outcomes that can be analyzed. Each major platform shift, i.e. agrarian to industrial, will require the updating of knowledge to further answer important new questions.
There are risks associated with adjusting the rate because of the complexity of the modern market. Some have argued that we may need updated economic models that can handle and manage the digital era and create stronger predictions. As we change elements (i.e. technology) it will have an impact on our how the activities in the economy function and they will create new patterns of movement of goods, choices and outcomes that can be analyzed. Each major platform shift, i.e. agrarian to industrial, will require the updating of knowledge to further answer important new questions.
Criticism and Benefits of the Fed Reserve:
-Benefits include a stable system, consumer protections and community development.
-Criticisms include centralized control, contributions to inequality, slowing natural adjustments.
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