FED

Federal Reserve

Introduction

Each country has certain body that looks after the country's economy and provides guidance for further improvement. This body is known as central bank of the country as it offers economy with funds when banks are facing money shortage. Hence, it is a last resort for any commercial bank that initiates activities in the economy for money supply.

This paper will focus on the central bank of U.S.A which is known as Federal Reserve i.e. FED that looks after U.S.A economy and influence financial institution activity. Furthermore, this body has been the most powerful organizations on globe due to functions and overseeing monetary system.

Federal Reserve as Central Bank & stabilization of the Economy

As we know that central bank of U.S.A is known as Fed. Promoting maximum employment, price stability and track over the interest rate in the country are the main responsibilities of Feb. The stated responsibilities of Feb assist in stabilizing the current economy of U.S. The losses that was suffered by U.S.A during financial crisis, these losses have been almost covered through providing and maintaining the effective payment system which blocked during financial crisis, supervising and regulating banking operation and hence proper implementation of monetary policy.

Furthermore, Federal Reserve as Central Bank & stabilization of the Economy have keep track over the buying and selling of U.S. Government Securities and furthermore, they have adopted Open market operation for risk assessment and for accomplishing their long term goals that is price stabilization and sustainable economic-growth.

The other techniques through which Fed influence the U.S. economy is the federal funds rate which can be influence by open market operation, discount rate, reserve requirement adjustments and performing as a lender. This is the rates which are charged on the short term loan by the Fed charged from the banks.

There are many tools available with Feb through which they stabilize the economy of the U.S.A through contraction or expansion polices (Federal Reserve District, 2012).

Economic Indicators

The economic indicators the Federal Reserve System will analyze to solve to for particular economy are usually as followed:

Inflation : General prices level of goods and services in an economy

Gross Domestic Product: Goods and Services market value produced by a country

labor market: Employment Rate

The reason for studying Inflation is because it influences investment real values either increased or decreased and compensation of the rate which is erosion. They have directly proportion to each. If inflation within the country increases by certain percentage, the investment value also increases by the same percentage and vice verse. This is the reason which Feb should analyze these indicators as this either enhances or reduces the purchasing power of the people.

GDP fluctuate with inflation. GDP also has a connection with the country's living standard. It does not have to do anything with the purchasing power while investment has much linkage with GDP. It show how economy is performing and comparison of GDP with previous year will indicate the whether the economy is expanding or contracting forcing Fed to analyze this ...