Binary Options Lexicon: The US Federal Reserve

binary-options-lexicon-federal-reserveThe US Federal Reserve, often referred to as the fed by the media, is the US central bank. The US Federal Reserve was created on December 23, 1913 in response to several bank crises, of which the most significant was the bank panic of 1907. The US Federal Reserve’s independence was asserted during the 1975-1985 period of currency instability.

US Federal Reserve Objectives: The Fed has several objectives: full employment, price stability and long-term control of interest rates. The first two objectives are called the “dual objective” or “dual mandate”. The Fed must simultaneously regulate the banking system and ensure equilibrium within the financial system. The Federal Reserve also analyses the American economy through reports such as the well-known “Beige Book” and performs synthesis of the economic situation in each region.

US Federal Reserve governance: The federal reserve is composed of a Board of Governors, the Federal Open Market Committee (FOMC), 12 regional banks (Federal Reserve Banks), as well as member banks and advisory boards.
The FOMC oversees monetary policy and is made up of seven members from the Board of Governors and the 12 regional bank presidents, of which five hold the right to vote.

Peculiarities of the US Federal Reserve: The fed is different from other central banks for two reasons: For one, it has a unique structure when compared to other national central banks, as it includes both public and private components in order to satisfy member bank interests and general interests overall. The second reason is that the treasury department oversees monetary creation – not the central bank.

An institution independent of political power: Federal Reserve decisions are independent of political power; the institution members’ mandates are different from those of elected officials; and the fed doesn’t receive a congressional budget.

The power of government control: The US federal government nonetheless has the ability to exercise control over the US Federal Reserve. It can, for one, exercise its’ right to congressional oversight, and the President, with the support of the Senate, can also nominate members to the Board of Governors. Commercial banks are members of the regional fed, based on the location of their head offices, and do play a part in this. These banks have the ability to elect Board members to each regional Federal Reserve board. It is also important to know that the federal government profits from the fed and pays a 6% dividend to the commercial member banks.

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