Question

What is the major purpose of the Federal Reserve System? What is the major responsibility of the Board of Governors and the Federal Open Market Committee?

Answer 1

The Federal Reserve System, often referred to as the Federal Reserve or simply "the Fed," is the central bank of the United States.The Federal Reserve Bank was founded by the U.S. Congress in 1913 to provide the nation with a safe, flexible, and stable monetary and financial system.

Major purpose of Federal Reserve System are:

The Board of Governors--located in Washington, D.C.--is the governing body of the Federal Reserve System. It is run by seven members, or "governors," who are nominated by the President of the United States and confirmed in their positions by the U.S. Senate.

• Conduct the monetary policies : Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.

• Supervise and Regulate the banking and financial system: Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.

• Stabilty of financial system: Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.

• Facilitator Role: Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems.

• Promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole.

Board Responsibilities

• The Board provides general guidance, direction, and oversight when the Reserve Banks lend to depository institutions and others and when the Reserve Banks provide financial services to depository institutions and the federal government.
• The Board also has broad oversight responsibility for the operations and activities of the Federal Reserve Banks. This authority includes oversight of the Reserve Banks' services to depository institutions, and to the U.S. Treasury, and of the Reserve Banks' examination and supervision of various financial institutions.
• The Board also helps to ensure that the voices and concerns of consumers and communities are heard at the central bank by conducting consumer-focused supervision, research, and policy analysis, and, more generally, by promoting a fair and transparent consumer financial services market.

Federal Open Market Committee

The Federal Open Market Committee, or FOMC, is the Fed's monetary policymaking body.

The voting members of the FOMC are the Board of Governors, the president of the Federal Reserve Bank of New York and presidents of four other Reserve Banks, who serve on a rotating basis. All Reserve Bank presidents participate in FOMC policy discussions. The chairman of the Board of Governors chairs the FOMC.
It is responsible for formulation of a policy designed to promote stable prices and economic growth. Simply put, the FOMC manages the nation's money supply
The FOMC typically meets eight times a year in Washington, D.C. At each meeting, the committee discusses the outlook for the U.S. economy and monetary policy options.

The FOMC is an example of the interdependence built into the Fed's structure. It combines the expertise of the Board of Governors and the 12 Reserve Banks. Regional input from Reserve Bank directors and advisory groups brings the private sector perspective to the FOMC and provides grassroots input for monetary policy decisions.