The Federal Reserve System Affects You More Than You Might Think

The Federal Reserve, the U.S.’s independent central bank, impacts the lives of U.S. citizens on a daily basis. The Federal Reserve commonly referred to as the “Fed” is part of the U.S. Federal Government, but is an independent office, meaning it can make decisions without approval from the President or Congress. It accomplishes four basic duties: conduct monetary policy, supervise banks, maintain stability of the financial system and provide financial services to the banking system.

The first of its four duties – to conduct monetary policy- is often discussed in the media because it has widespread impact on an individual’s ability to purchase goods or services. The Fed controls or regulates interest rates, so, for example, if you want to buy a bond, it impacts what rate you will get paid and the price of the bond or if you want to buy a house, it impacts the mortgage rate.

The Fed can influence the ability of companies to hire employees. If the Fed expects an economic slowdown and wants to create more jobs, it can provide more money to banks to lend to businesses so they can hire. Or if it believes the consumer needs to spend more money so that businesses can make more and hire more, then it can lower interest rates so that car loans, home loans, and credit card interest rates are cheaper for us.

Two of its other duties center on supervising and providing services to banks. Its goal to maintain stability of the financial system, can be accomplished by increasing or decreasing the money supply. If the amount of money is too great and inflation starts to increase, the government can reduce buying activity or raise rates. Increasing the supply may initially feel good to the consumer, but it is not all for long. The more supply of dollars in circulation, the less they are worth, so the fewer goods

we can buy with the same amount of money.

B. Mark the sentences a) T (True)

B) F (False)

C) NG (Not Given)

1. The Fed can influence the ability of companies to fire employees.

2. Before the founding of the Federal Reserve System, the United States underwent several financial crises.

3. The Federal Reserve can make decisions without the permission from the President or Congress.

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