An Examination of the Current United States Federal Reserve System

Running head: UNITED STATES FEDERAL RESERVE: AN EXAMINATION OF

An Examination of the Current United States Federal Reserve System

Rob Taylor

Strayer University

On December 23, 1913, the Federal Reserve System, which serves the nation’s central bank, was created by an act of Congress called The Federal Reserve Act. The system consists of a seven member Board of Governors with headquarters located in Washington, D.C., and twelve Reserve Banks located in major cities throughout the United States. (Federal Reserve, 2010)

The seven members of the Board of Governors are appointed by the President and confirmed by the Senate to serve 14-year terms of office. Members may serve only one full term, but a member who has been appointed to complete an unexpired term may be reappointed to a full term. The President designates, and the Senate confirms, two members of the Board to be Chairman and Vice Chairman, for four-year terms. (Federal Reserve, 2010)

The primary responsibility of the Board members is the formulation of monetary policy. The seven Board members constitute a majority of the 12-member Federal Open Market Committee (FOMC), the group that makes the key decisions affecting the cost and availability of money and credit in the economy. The other five members of the FOMC are Reserve Bank presidents, one of who is the president of the Federal Reserve Bank of New York. The other Bank presidents serve one-year terms on a rotating basis. By statute the FOMC determines its own organization, and by tradition it elects the Chairman of the Board of Governors as its Chairman and the President of the New York Bank as its Vice Chairman. (Federal Reserve, 2010)

The Board sets reserve requirements and shares the responsibility with the Reserve Banks for discount rate policy. These two functions plus open market operations constitute the monetary policy tools of the Federal Reserve System. (Federal Reserve, 2010)

In addition to monetary policy responsibilities,...