Snapshot of the Federal Reserve System
Perhaps no institution has more power to affect the nation's economy than the
Federal Reserve, the independent central bank established by Congress in 1913.
Under the leadership of its influential chairman, Janet Yellen, the Fed steers
the economy most directly by periodically raising and lowering the federal funds
rate, which banks charge to each other on overnight loans. Such rate changes can
take six to nine months to work completely through the economy.
While Fed policy changes frequently are attributed to the central bank's
Chairman, Janet Yellen, decisions actually are made by the Federal Open Market
Committee. The Federal Open Market Committee consists of twelve members: the
seven members of the Board of Governors of the Federal Reserve System; the
president of the Federal Reserve Bank of New York; and, for the remaining four
memberships, which carry a one-year term, a rotating selection of the presidents
of the eleven other Reserve Banks. The FOMC holds eight regularly scheduled
meetings per year to direct the conduct of open market operations by the Federal
Reserve Bank of New York in a manner designed to foster the long-run objectives
of price stability and sustainable economic growth. The FOMC also establishes
policy relating to System operations in the foreign exchange markets.
Through its interest rate adjustments the Fed attempts to guide the economy.
But, what is the actual effect of these actions?