The Fed (Part 1 of 2)

     Very few if any of the Stock Traders Press clients can say that they are not affected by the Federal Reserve. The stock markets have been gyrating like a yo-yo because the Fed said this or the Fed did that By their words and actions they probably affect the value of your portfolio more than any other entity. But who or what is the Fed? In this series we will look at who or what they are, their origin, their purpose, and the means they use to accomplish their goals.

    The Federal Reserve was designed by the U.S. Congress and came into existence by the pen of President Woodrow Wilson in 1913. The U.S. had seen a number of ugly economic crisis which prompted the Congress to create an institution to counter financial disruptions to the nation's economy. The Federal Reserve Act stated the Fed's purposes were: "to provide for the establishment of Federal reserve banks, to furnish an elastic currency, to provide means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes."

    The Federal reserve functions as a completely independent bank and does not have to seek approval for its actions from the President, the Secretary of the Treasury or anyone else in the Executive branch of the government. But the Bank is under the oversight of the U.S. Congress because the power to coin money and set its value was given to the U.S. Congress by the U.S. Constitution, a power the Congress itself delegated to the Federal Reserve in the Federal Reserve Act of 1913. The Congress has on numerous occasions passed legislation that clarifies and supplements the role of the Federal Reserve. Some of the additional duties and objectives given to the Fed by more recent legislation has been to provide economic growth in line with the economy's potential to expand, a high level of employment, stable prices and purchasing power of the dollar, and moderate long-term interest rates.

    The U.S. Federal Reserve Bank acts as the central U.S. bank in the same manner as most every other country has its own central bank with a similar role in that countries economic process. In the news we often hear of economic intervention or interest rate changes by the central bank of other countries. The Bank of England, England's central bank has existed since the end of the seventeenth century, the Banque de France was established by Napolean I in 1800, and the Bank of Canada began operations in 1935. The German central bank was re-established after World War II and is roughly modeled after the U.S. Federal Reserve Bank.