The Life and Qualifications of Federal Chairwoman
Janet Yellen.
Jedidiah Wilson
Broward College
Importance of the Federal Reserve
The Federal Reserve was created by President Woodrow Wilson in December of 1913. President Woodrow created the Federal Reserve to create a more stable economy and to help the American people to trust the economy after some small depressions and the panic of 1907. The Federal Reserve is responsible for four general areas.
• Conducting the nation's monetary policy by influencing money and credit conditions in the economy in pursuit of full employment and stable prices.
• Supervising and regulating banks and other important financial institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.
• Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
• Providing certain financial services to the U.S. government, U.S. financial institutions, and foreign official institutions, and playing a major role in operating and overseeing the nation's payments systems. (What is the Purpose of the Federal Reserve, 2014)
This means that the Federal Reserve controls most of our nation’s economy. This makes those in control of the Federal Reserve some of the most important people in our nation. The Federal Open Market Committee (FOMC) is the part of the Federal Reserve that makes monetary policy. This means that the Federal Chairman plays a major say in monetary policy which puts him or her in a very powerful and important position in the United States Government. For the first time in history, a woman, Janet Yellen, is now the Federal chairman. Accordi...
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...chairwoman. Yellen has vast experience and insight into the economy and should do a great job as the new Federal chairwomen. The only thing that does concern me with Yellen is the way she is willing to risk high inflation to help other parts of the economy. Other than risking high inflation, Yellen seems like she will do a great job handling monitary policy and that she can help the economy grow and expand with the knowledge and understanding she has of the economy. Yellen has to be one of the best especially since she was one of the top economic advisors for President Bill Clinton, who was one of the best economic presidents of all time. Knowing the experience and success she has I trust Janet Yellen handling the economy and helping it grow. I trust Yellen to handle the economy and to help it grow creating policies that continue to keep the economy growing.
According to federalreservehistory.org “The Federal Reserve is about the Central Bank of the United States it was created by Congress to provide the nation with a safer, more flexible and more stable monetary and financial system. The Federal Reserve was created in 1913 with the enactment of the Federal Reserve Act” (federalreservehistory.org). According to investopedia.com “the Fed is headed by a government agency in Washington known as the Board of Governors of the Federal Reserve. There are 12 regional Federal Reserve banks located in
In addition, the Federal Reserve did badly on supervision of the financial market. Many banks did not have enough ability to value their risk. The Federal Reserve and other supervision institution should require these banks to enhance their ability of risk valuing.
Monetary Policy is another policy used in Keynesianism which is a list of protocols designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system, also known as the central banking system in the U.S., which holds control of this policy. Monetary policy has three tools used by the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rate a bank will charge.
Also created was the Federal Deposit Insurance Corporation, which insured the money in banks. This helped because then, in the case of another bank crisis, people's money would not be lost. The FDIC was another reason, along with FDR's rhetoric, that people began to trust the banks and government again. One major policy FDR began was social security, which is still around today. When creating this idea of social security, it is clear he meant it to help the people, but also that he meant it to be permanent.
In 1913, Wilson and Congress passed the Federal Reserve Act to make a decentralized national bank containing twelve local offices. By and large, all the private banks in every district possessed and worked that separate area's branch. In any case, the new Federal Reserve Board had the last say in choices influencing all branches, including setting financing costs and issuing money. This new managing an account framework settled national funds and credit and helped the monetary framework survive two world wars and the Great
One such issue was that of the National debt and creating a National Bank. In 1790, Alexander Hamilton proposed that Congress should establish a national bank, in which private investors could buy stock, could print paper money, and keep government finances safe. Washington signed the bill establishing a national bank and started a strong foundation for a thriving economy and a stable currency.
Alexander was also requested to create a national currency system. He proposed to the Bank of the United States that a central bank would help the new nation's economic change through a more secure paper currency. By the end, with support from the president, the bank was leased with its first command post in P...
The first goal of the Fed’s dual mandate is for the United States to have maximum employment and good economic growth. They just want to make sure the country stays out of a recession and the unemployment rate is kept low. The second goal is price stability or simply stopping inflation. Without keeping inflation stable the U.S dollar will lose it value in the world economy and cause all sorts of new problems for the country. (Federal Reserve Bank of Chicago) The Federal Reserve makes a lot of decisions based off of what the outcome
The Dodd-Frank Wall Street Reform and Consumer Protection Act brought the most significant changes to financial regulation in the United States since the reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation’s financial services industry. Like Glass-Steagall, the legislation passed after the Great Depression, it sought to regulate the financial markets and make another economic crisis less likely. Banks were deregulated in 1999 by the Gramm-Leach-Biley Act, which repealed the Glass-Steagall Act and essentially allowed for the excessive risk taken on by banks that caused the most recent financial crisis. The Financial Stability Oversight Council was established through the Dodd-Frank Wall Street Reform and Consumer Protection Act and was created to address the systemic risks in the United States financial system and to improve coordination among financial regulators.
The Federal Reserve System is the central banking authority of the United States. It acts as a fiscal agent for the United States government and is custodian of the reserve accounts of commercial banks, makes loans to commercial banks, and is authorized to issue Federal Reserve notes that constitute the entire supply of paper currency of the country. Created by the Federal Reserve Act of 1913, it is comprised of 12 Federal Reserve banks, the Federal Open Market Committee, and the Federal Advisory Council, and since 1976, a Consumer Advisory Council which includes several thousand member banks. The board of Governors of the Federal Reserve System determines the reserve requirements of the member banks within statutory limits, reviews and determines the discount rates established pursuant to the Federal Reserve Act to serve the public interest; it is governed by a board of nine directors, six of whom are elected by the member banks and three of whom are appointed by the Board of Governors of the Federal Reserve System. The Federal Reserve banks are located in Boston, New York, Philadelphia, Chicago, San Francisco, Cleveland, Richmond, Atlanta, Saint Louis, Minneapolis, Kansas City and Dallas.
...Governors is also the chairman of the FOMC. Its principal duty as described under law is the supervision of open market operations that principal method of federal monetary policy (Federal Reserve System 8th ed. pp. 12).
The term Monetary policy refers to the method through which a country’s monetary authority, such as the Federal Reserve or the Bank of England control money supply for the aim of promoting economic stability and growth and is primarily achieved by the targeting of various interest rates. Monetary policy may be either contractionary or expansionary whereby a contractionary policy reduces the money supply, reduces the rate at which money is supplied or sets about an increase in interest rates. Expansionary policies on the other hand increase the supply of money or lower the interest rates. Interest rates may also be referred to as tight if their aim is to reduce inflation; neutral, if their aim is neither inflation reduction nor growth stimulation; or, accommodative, if aimed at stimulating growth. Monetary policies have a great impact on the economic stability of a country and if not well formulated, may lead to economic calamities (Reinhart & Rogoff, 2013). The current monetary policy of the United States Federal Reserve while being accommodative and expansionary so as to stimulate growth after the 2008 recession, will lead to an economic pitfall if maintained in its current state. This paper will examine this current policy, its strengths and weaknesses as well as recommendations that will ensure economic stability.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
The Federal Funds Rate is the interest rate that Federal Reserve uses to trade funds with banks. Changes in this rate can trigger a chain of events that can be beneficial or devastating to the economy. If a bank is charged a higher interest rate to trade money or take out a loan, then the increase will be passed on to their customers, causing them to pay higher transaction fees or more interest. Each month, the Federal Open Market Committee meets to determine the federal funds rate. This in turn affects other short term interest rates. The determining rate immediately impacts the rates at which banks borrow money and the interest rates the banks use to charge their customers on loans. If the rate raise is too high, then money flow drops dramatically and banks and customers curtail lending and borrowing, waiting until a better rate is reached. This effect can have a dramatic impact on the economy and economic spending.
As we are moving to the end of the course, we want to present you with the Federal Reserve System (Fed), which is the central bank of the USA. We are going to explore the roles of Fed in regularizing the economy, its function, and also the tools used in doing that. We will learn how central banks regulate the banking system and how they manage money supply in economies. We will also be presented to the financial crises lessons we can be able to understand the importance of the regulatory system; and then, we answering questions such as: