The views expressed in this presentation are mine and not the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System.

Scott Wolla, Ph.D.Senior Economic Education SpecialistFederal Reserve Bank of St. Louisscott.a.wolla@stls.frb.org

The Federal Reserve System

State three things you already know about the Federal Reserve.

1. 2. 3.

The Federal Reserve?

Listen closely – you will use this information to create your own Fed story.

The Federal Reserve?

The Federal Reserve was created after a series of financial crises made it obvious that the U.S.

needed a central bank.

The Federal Reserve

The Federal Reserve

• Congress passed, and Woodrow Wilson signed, The Federal Reserve Act which created the Federal Reserve System in 1913.

• The Fed was created to:– influence the supply of money

and credit; – regulate and supervise financial

institutions; and – serve as a banking and fiscal

agent for the U.S. government.

The Federal Reserve is the Central Bank of the United States

“Central bank” is the generic name given to a country’s primary monetary authority.

A nation’s central bank is usually given a mix of responsibilities including:• determining the money supply, • supervising banks, • providing banking services for

the government, and • lending to banks during crises.

The Federal Reserve

The Federal Reserve System has 3 key components.

The Board of Governors

The Board of Governors is the federal government agency that:• regulates financial

institutions, • contributes to the nation’s

monetary policy, and • oversees the activities of the

Reserve banks.

The Board of Governors

Just the Facts:• 7 Governors• 14 year terms• Chair serves 4 year

term(s)• President appoints,

Senate confirms

The current chair is Jerome Powell

The Board of Governors Seven Governors at the Board of Governors

The Federal Reserve Banks

There are 12 Federal Reserve Districts, each is served by an independent Reserve bank. There are also 24 branch offices.

The Federal Reserve Banks

Reserve banks:

• conduct research on the economy,

• supervise banks in their regions, and

• provide financial services to banks and the U.S. government.

The Federal Reserve Banks

Reserve banks are not government agencies.

The Reserve banks are the decentralized component of the Federal Reserve System.

They ensure that regional interests are presented at FOMC meetings.

Reserve Banks Provide Financial Services

Reserve banks circulate currency, clear checks and provide several forms of

electronic payment such as wire transfer and ACH.

Check Clearing Electronic Payments Circulate Currency

Federal Open Market Committee (FOMC)

Committee = 12 Reserve Bank Presidents + 7 Governors* = 19

Voting = 5 Reserve Bank Presidents + 7 Governors* = 12

*Currently there are two/three open positions.

The FOMCFOMC manages the nation’s money supply to help the economy

achieve its mandates.

Has 12 voting members• Seven members of the Board

of Governors• President of the New York

Federal Reserve• Four Reserve Bank Presidents

on a rotating basis• Meets 8 times a year

Q: What is the FOMC’s primary job?A: Monetary Policy

• The Federal Reserve uses monetary policy to help stabilize the economy.

• The Fed uses its monetary policy tools to influence interest rates and, ultimately, the performance of the U.S. economy.

The Dual Mandate

The Federal Reserve's mandate is to promote the two objectives of maximum employment and price stability.

The Dual Mandate

• The dual mandate is like driving on an interstate with a minimum and maximum speed limit.

• The FOMC’s goal is to keep the car - or in this case, the economy -going at a fast, but safe speed.

The Dual Mandate

If the economy were a car and the FOMC were its driver…

If the car starts to slow or encounters a hill, the driver may have to give it a bit more gas to maintain speed.

The Dual Mandate

This is called expansionary policy.

The Dual Mandate

When the car starts to go too fast, the driver will have to ease up on the gas or even tap on the brakes to slow its momentum.

The Dual Mandate

This is called contractionary policy

The Dual Mandate

Monetary Policy – Traditional Tools

The Federal Reserve System uses several monetary policy tools in fulfilling its monetary policy responsibilities.

Regulation and Supervision

• Board of Governors writes the rules that regulate financial institutions.

• Reserve banks supervise the enforcement of these rules by conducting bank and bank holding company examinations.

Regulation and Supervision

The Fed has historically acted as the lender of last resort.

The Discount Window

Regulation and Supervision

Safety and Soundness

To measure the safety and soundness of a bank, an

examiner performs an on-site examination review of the

bank's performance based on its management and financial

condition.

Regulation and Supervision

Consumer Protection

Another Fed goal is to protect consumers in lending and

deposit transactions.

Project

1. Use the cards and art supplies to create a story about the topic stated on the top card.

2. Share your story with the group.

FREE Classroom Resources!http://www.stlouisfed.org/education

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Scott Wolla, Ph.D.Senior Economic Education SpecialistFederal Reserve Bank of St. Louisscott.a.wolla@stls.frb.org