The Federal Reserve System (the Fed) is the central banking authority of the United States. It conducts monetary policy, supervises and regulates banks, maintains financial system stability, and provides certain financial services to the U.S. government and the public. The Fed operates with a degree of independence but is accountable to Congress and the public.
The Fed uses several tools to influence the economy. The Federal Open Market Committee (FOMC) sets the target range for the federal funds rate, the rate at which banks borrow reserves overnight. It carries out open market operations—buying or selling U.S. government securities—to steer short-term rates and the money supply. It can adjust reserve requirements for banks and, through the discount window, influence borrowing costs for banks. Communication and economic projections also guide expectations for future policy.
The Board of Governors, located in Washington, D.C., along with twelve regional Federal Reserve Banks, implements policy, supervises and regulates banks, and provides payment system services. The Fed's actions affect borrowing costs, lending conditions, asset prices, and overall financial conditions, influencing economic activity and inflation.
As the U.S. central bank, the Fed operates with the mandate to promote maximum employment and stable prices, often described as its dual mandate. It functions with independence within the federal framework, guided by economic data and financial market developments.
For example, the Federal Open Market Committee may adjust the target range for the federal funds rate to influence borrowing costs and financial conditions.
Federal Open Market Committee (FOMC) · monetary policy · central bank · federal funds rate · open market operations · discount window