The FRS is the Federal Reserve System.

The U.S. central bank is the Federal Reserve System (FRS). The Fed oversees the U.S. financial system. A central government institution in Washington, D.C., the Board of Governors, and 12 regional Federal Reserve Banks in major U.S. cities make up the Federal Reserve System. The Fed oversees monetary policy and other matters.

Federal Reserve System knowledge

The Fed is the U.S. central bank—a major economic and banking force. The governor and six board members run the bank. Presidents nominate, and the Senate confirms these people.
The Fed has five primary duties:

• Conducting national monetary policy
• Banking regulation
• Consumer credit rights monitoring and protection
• Maintaining financial stability
• Serving the U.S. government financially

The three Fed wholesale payment systems are the Fedwire Funds Service, Fedwire Securities Service, and National Settlement Service.

The Fed is the chief supervisor of Federal Reserve System banks and has considerable jurisdiction to guarantee financial stability. It lends to member institutions with no other options.

The Fed’s open-mouth activities reveal the interest rate. States, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency regulate U.S. banks.

The Fed pays

Fedwire and FedNow are Fed payment mechanisms. FedNow provides quick payments. As the Fed says, “payments that can be sent and received within seconds at any time of the day, on any day of the year, such that the receiver can use the funds almost instantly”

Financial institutions with Fed accounts use Fedwire to make payments. The Fed says it’s a “real-time gross settlement system that enables participants to initiate funds transfers that are immediate, final, and irrevocable once processed.” Large, time-sensitive payments are made with it.

Federal Reserve System History

In reaction to the 1907 financial panic, President Woodrow Wilson signed the Federal Reserve Act on December 23, 1913, creating the Fed. The U.S. was the only significant economic power without a central bank before then.

Historical highlights of the Fed include:

• The Federal Reserve Act mandates commercial banks keep reserves with their local Reserve Bank. The discount window allowed banks to borrow more money as required. Discount window lending helps commercial banks satisfy short-term liquidity needs.
• Early Fed reforms were many. After the Great Depression, things changed. With the Banking Acts of 1933 and 1935, the Fed’s board gained power from the 12 Reserve Banks.
• The 1977 Federal Reserve Reform Act requires the central bank to report to Congress on its strategy to maximize employment and inflation.

The Federal Reserve System (FRS) vs. the Federal Open Market Committee (FOMC)

The FOMC sets the Fed’s monetary policy and oversees the money supply. It consists of the seven members of the Fed Board of Governors, the New York Fed president, and four of the remaining 11 regional Fed presidents, who serve alternating one-year terms. The FOMC meets eight times a year, regularly and as required, to discuss the economy and monetary policy choices.

The FOMC sets the overnight federal funds rate target, which governs short-term interest rates, based on economic performance during its meetings. The target rate is lowered to stimulate the economy. Instead, it boosts the federal funds rate to restrict growth.

Recent target rate movements are seen here:

• After the 2008 recession, the goal rate was decreased to 0.25% for seven years.
• The Fed raised the target rate from 0.25% to 0.5% on December 16, 2015, the first boost in over ten years.
• Starting August 1, 2019, the FOMC raised the rate to 2.0%–2.25%.
• The rate plummeted from 0% to 0.25% when the Fed announced the move on March 16, 2020. The Fed highlighted COVID-19 difficulties.
• After that, the rate rose sharply from 5.25% to 5.5% at the final FOMC meeting in July 2023. Higher inflation prompted the hikes.

What are the three main goals of the Federal Reserve System?

The Federal Reserve System has three primary goals:

• Highest employment
• Stable prices
• Long-term, moderate interest rates

The Federal Reserve Act, which established the Fed, set these aims.

Who runs the Fed?

The Board of Governors runs the U.S. central bank, the Federal Reserve. The Senate has approved the president’s nomination of seven members for the board in Washington, D.C.

Who manages monetary policy?

The U.S. national bank, the Federal Reserve, controls monetary policy. The central bank owns the discount window and rate, reserve requirements, and open market activities. A nation’s government sets taxation and fiscal policies.

The Bottom Line

The U.S. central bank is the Federal Reserve System (FRS). The Fed controls U.S. monetary policy. It regulates banks, monitors and protects consumer credit rights, maintains financial system stability, and provides financial services to the U.S. government.

Conclusion

• The Fed is the U.S. central bank.
• It regulates banks and manages the country’s monetary policy.
• The Federal Reserve payments system, Fedwire, transmits billions of dollars every day between institutions.
• The Federal Open Market Committee sets monetary policy and controls the money supply.
• Based on its economic assessment, the FOMC modifies the overnight federal funds rate target, which governs short-term interest rates.