Definition
The Federal Reserve (the Fed) is the central bank of the United States, established in 1913. Its dual mandate is to maximize employment and maintain stable prices. The Fed controls monetary policy primarily through setting the federal funds rate, open market operations, and reserve requirements. The Federal Open Market Committee (FOMC) meets eight times annually to set policy. Fed decisions have enormous market impact - rate changes affect borrowing costs, valuations, and economic activity. The Fed also supervises banks and serves as lender of last resort.
Example
When the Fed raises rates by 0.25%, mortgage rates might rise 0.5%, companies face higher borrowing costs, and stock valuations may compress as the discount rate increases. Fed Chair speeches are closely watched for policy hints.
FAQ
What is Federal Reserve?
The central banking system of the United States responsible for monetary policy.
Why is Federal Reserve important?
Federal Reserve helps investors evaluate macroeconomic and make more informed decisions.