Eyes On The Fed

The Federal Reserve

What is it?

The Federal Reserve is the central banking system of the United States. It was created through the Federal Reserve Act in 1913 and has many duties. Today, the fed handles the nation's financial policy, supervises and regulates banks, maintains the stability of the financial system and provides service to banks and savings institutions.

Power

The Federal Reserve can use its powers to wield business activity by raising or lowering the supply of money. This is a main responsibility of the Fed. If the Fed wants more business activity to happen, it will raise the supply of money. They can do this by lowering rates or by buying government securities. If the Fed lowers interest rates, it’s then easier and cheaper for companies to borrow money. Ergo, they borrow and spend more. This increases the level of a business activity. If they Fed decides to buy government securities from banks, it’s giving them money that wasn’t there before. The banks will then lend that money, meaning more business activity.

However, if the Fed decides there is too much business activity or that exaggerated inflation is at risk of occurring, it will take an opposite wrought. The Fed will raise the interest rates and/or sell the government bonds. This will take money out of the economy and make it more difficult for banks/people to borrow.

5 years from now

There are many options for how people can handle their finances. I myself in the next 5 years will probably using a bank with some type of loans system such as student loans (since I will still be in school). I also plan to use a savings account with a debit card attached to it so I am able to take money in and out at my leisure. More than likely there will also be a credit card set up so I can build by credit score for the future and be eligible for a mortgage, car, etc.

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As you can see above the Federal Reserve System is very significant to the banks of the United States. It controls the lowering and boosting of the money supply; it supervises the inflation of money, and controls the activity of businesses.