The Fed Explained

Once the FOMC determines the stance of policy appropriate to achieve its dual mandate objectives, it must then make sure this stance is effectively implemented. This book is available in Adobe Acrobat format, as a complete publication or by chapter.

FOMC Press Conference

• Lowering that target range represents an “easing” of monetary policy because it is accompanied by lower short-term interest rates in financial markets and a loosening in broader financial conditions.
• Once the FOMC determines the stance of policy appropriate to achieve its dual mandate objectives, it must then make sure this stance is effectively implemented.
• They analyze the most up-to-date economic data and review reports and surveys from consumer, business, and financial market contacts.
• The Fed sets the stance of monetary policy to influence short-term interest rates and overall financial conditions with the aim of moving the economy toward maximum employment and stable prices.

They analyze the most up-to-date economic data and review reports and surveys from consumer, business, and financial market contacts. The Tab key may be used in combination with the Enter/Return key to navigate and activate control buttons, such as caption on/off. The Federal Open Market Committee’s decision to ease (as in this example) or tighten monetary policy sets off a chain of events. Official websites use .govA .gov website belongs to an official What is Ripple government organization in the United States. The Fed also has other tools that it sometimes uses, such as large-scale asset purchases (sometimes known as quantitative easing) or forward guidance (setting the public’s expectations for future actions by the Fed).

• The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.
• The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations.
• The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.
• When necessary, the Fed changes the stance of monetary policy primarily by raising or lowering its target range for the federal funds rate, an interest rate for overnight borrowing by banks.

Want to learn more? See The Fed Explained Publication

The Federal Reserve controls the three tools of monetary policy–open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three tools, the Federal Reserve influences the demand for, and supply of, balances that depository institutions hold at Federal Reserve Banks and in this way alters the federal funds rate. The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

Federal Reserve Banks

The members of the Federal Reserve’s Board of Governors in Washington, D.C., and the presidents of the regional Federal Reserve Banks participate in Federal Open Market Committee meetings. At these meetings, this group of policymakers discusses the state of the national economy as well as economic conditions prevailing across different parts of the United States, and they deliberate on an appropriate policy course to support strong labor markets and price stability. To communicate its policy actions to the public, the FOMC releases written statements after every scheduled meeting. Though it specifies the goals for monetary policy, Congress has also provided the Federal Reserve operational independence. This flexibility ensures that monetary policy decisions can be directed toward the longer term, be based on data and objective analysis, and best serve the interests of all Americans. FOMC policymakers rely on a broad range of information in their assessments and deliberations.

Board of Governors of the Federal Reserve System

The Fed sets U.S. monetary policy to promote maximum employment and stable prices in the U.S. economy. The FOMC holds eight regularly scheduled meetings during the year and other meetings as needed. The minutes of regularly scheduled meetings are released three weeks after the date of the policy decision. The term “monetary policy” refers to the actions undertaken by a central bank, such as the Federal Reserve, to influence the availability and cost of money and credit to help promote national economic goals. The Federal Reserve Act of 1913 gave the Federal Reserve responsibility for setting monetary policy.

Federal Reserve Bank Rotation on the FOMC

At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. The Fed sets the stance of monetary policy to influence short-term interest rates and overall financial conditions with the aim of moving the economy toward maximum employment and stable prices. Lowering that target range represents an “easing” of monetary policy because it is accompanied by lower short-term interest rates in financial markets and a loosening in broader financial conditions.

Raising the target range represents a “tightening” of monetary policy, which raises interest rates and may be necessary if the economy is overheating or inflation is too high. In November 2024, the Federal Reserve announced additional information about the periodic review of its monetary policy strategy, tools, and communications—the framework it uses to pursue its congressionally-assigned goals of maximum employment and price stability. Monetary policy in the United States comprises the Federal Reserve’s actions and communications to promote maximum employment, stable prices, and moderate long-term interest rates–the economic goals the Congress has instructed the Federal Reserve to pursue. When necessary, the Fed changes the stance of monetary policy primarily by raising or lowering its target range for the federal funds rate, an interest rate for overnight borrowing by banks.

At the same time, the Federal Reserve is accountable to Congress and the American people for its actions. It achieves accountability by being transparent about its policy deliberations and actions through a range of official communications. The Fed works to promote a safe, efficient, and accessible system for U.S. dollar transactions. The Fed promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole. The Fed monitors financial system risks to help ensure the system supports a healthy economy for U.S. households, communities, and businesses.