The History and Operation of the Federal Reserve Bank and Monetary Policy

Introduction

The Fed (Federal Reserve System) often called Federal Reserve or in short Fed is the central bank of the United States. The bank was established on 23 December 1913 by the Federal Reserve Act, also says Owen Glass Act. Twelve regional banks are the basis of the structure of the U.S. Federal Reserve. The bank has the status of an independent legal entity, but the management appointed by the president carries the Governing Council of the U.S. Federal Reserve.

The main functions of the Federal Reserve Bank are;

FED service the account and depository institutions provide different service payments, including encashment of checks, electronic funds transfer, distribution and accumulation (collection) in cash (paper) and coins.

Federal Government Reserve Banks act as a fiscal agent (institution that manages funds of the state money, including: control by the state, selected to reflect the tax and other revenues, as well as for government spending, stores the official state reserves; control internal and external public debt, including organizing the placement of government bonds and other similar government securities, the role of the agent performs the central bank).

Fed decides on the monetary policy of the United States with a twofold objective of price stability and full employment and the obligation to facilitate economic growth.

It supervises the United States Banking System.

Scope of the Research Paper

The paper will comprehensively cover the concept of “US Federal Reserve Bank”, it history and operations. It will further extend to the functions of monetary policy as well as the fiscal dimension of the Fed. The research will analyze US Fed System with interest rate perspective and its relation with “Financial Market”. The research also analyzes many aspects of “US Federal Reserve” and tries to gauge its effect on “Current Economic Activity”. Finally, the research describes various factors, which are responsible for “US Federal Reserve”, and tries to describe the overall effect of “US Federal Reserve” on “Financial Market”.

Detailed Outline of the Paper

Pre- Establishment History: The history before the establishment of Federal Reserve Bank in the United States and recurring problems and consequences that led to the formation. Modern study of economic instability in the United States begins with the Great Depression. Prior to the 1930s, economists treated macroeconomic instability as a difficulty best resolved by private markets. Indeed, the U.S. financial system had even operated for most of the pre-Depression period without a central bank.

Two Experiments: There had been two experiments with a Bank of the United States but, for a variety of reasons, neither survived its initial 20-year charter. During the nineteenth century, the United States had experimented with a number of currency and banking regimes. With the gold standard officially adopted in 1900, the United States entered the new century without a central bank. The next financial panic in 1907 convinced Congress that the economy did need a central banking authority to ensure the soundness of the country's banking system. The Federal Reserve Act of 1913 created a system ...