Question

1.) Describe the structure of the Fed and assess the effectiveness of its structure

Answer 1

The Federal Reserve System is the central bank of the United States. The structure of the Federal Reserve consists of three key entities which helps in maintaining a stable monetary and financial system.

1.The Federal Reserve Board of Governors (Board of Governors) is an independent agency of the Federal government. It consists of 7 members appointed by the President of the United States and confirmed by the Senate. The current chairman of the Board of Governors of the Federal Reserve System is Jerome Powell. The board members are responsible for analyzing domestic and international economic and financial conditions, oversees everything that happens within the Federal Reserve System, makes regulatory decisions, and sets reserve requirements.

2.Federal Reserve Banks consists of 12 Federal Reserve Banks and 24 Branches. They are the operating arms of the Federal Reserve System. The Federal Reserve Banks are incharge of examining the economy and financial institutions in their districts while also promoting local community development. They are also responsible in providing financial services to the U.S. government and depository institutions as well as supervising and examining state member banks.

3. The Federal Open Market Committee (FOMC) is the key monetary policymaking body. It oversees the nation's open market operations. This committee is responsible for maintaining the interest rates and the growth of money supply of the country. It consists of twelve members, seven members of the Board of Governors of the Federal Reserve System and five Reserve Bank presidents, one of whom is the president of the Federal Reserve Bank of New York. The Board members, along with the Reserve Bank presidents, participate in formulating monetary policy measures through the Federal Open Market Committee. It reviews financial and budgetary conditions, decides the appropriate position of monetary policy, and assesses price stability and sustainable economic growth.

The Federal Reserve System also has two other significant entities that play an important role to the Federal Reserve Functions:

1.Depository institutions: They consist of commercial banks, thrifts, and credit unions. They hold stocks in one of the twelve regional Federal Reserve banks. These institutions are required to meet reserve requirements wherein they need to keep a certain amount of cash on hand or in an account at a Reserve Bank.

2.Federal Reserve System advisory councils: They consist of
-Federal Advisory Council (FAC)
-Community Depository Institutions Advisory Council (CDIAC).
-Model Validation Council.
-Community Advisory Council (CAC).
These advisory councils make recommendations to the Board of Governors and to the Reserve Banks regarding the system's responsibilities, agricultural, small business, and labor matters.