THE FEDERAL RESERVE

The Federal Reserve, which was established in 1913 by President Woodrow Wilson and his financial advisors, holds such power and responsibilities including: “Conducting the nations monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates; supervising and regulating banking institutions to ensure the safety and soundness of the nations banking and financial system and to protect the credit rights of consumers; maintaining stability of the economy and containing systemic risk that may arise in financial markets; and providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system.”


Although the Federal Reserve has many responsibilities, what is it about the Feds that has many individuals, ranging from fed watchers-to-economist-to ordinary intellectual investors listening very carefully, analyzing words and phrases expressed by the Federal Reserve? That can only be one thing, which is monetary policy and interest rates. One would probably ask, why listen and examine so carefully at every word and phrase by the Fed when the topic of short-term interest rates arises? This is mainly because a decrease or increase in short-term interest rates affects all aspects of the economy including: employment, inflation, investments, loans, mortgages, the stock market, etc. Taking into account the Federal Reserve’s power of monetary policy, it is unquestionable that the Feds adjust short-term interest rates for the betterment of the economy and to achieve economic growth as seen from June 2004 to June 2006 where the feds have adjusted interest rates 17 times.