The Federal Reserve (Fed)

• The Federal Reserve (Fed) is the central bank of the United States of America, established in 1913 in Washington DC.
• The Fed is the most powerful financial institution in the world, with Jerome Powell as Chairman of the Board of Directors.

Why was the Fed founded?

The Federal Reserve system was created as a response to the financial panic in the United States, as it became clear that central control was needed over the monetary system.

Initially, the banks' goal was to maximise employment, keep prices stable, and control long-term interest rates.

Over time, new responsibilities were added, including:

• The supervision and regulation of banks
• Maintaining the stability of the financial system  
• Provide financial services to depository institutions and the United States government.

What is the structure of the Fed?

The Fed follows this structure:

• Board of Directors based in Washington.
• 2 Federal Reserve Banks with offices in Boston, Philadelphia, New York, Cleveland, Atlanta, Richmond, St. Louis, Chicago, Minneapolis, Kansas City, Dallas and San Francisco.

Who sets the monetary policy?

The monetary policy is established by the Federal Open Market Committee (FOMC), and is made up of members of the Board of Directors and the presidents of the 12 Federal Reserve Banks.

It is important for investors to follow the decisions of the FOMC because changes in interest rates affect the markets, especially if the changes are unexpected. You can find out more about why central banks raise or lower interest rates in our article on interest rates.