The Fed (Part
1 of 2)
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.