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Federal Reserve System: America's Central Bank

FILE - The U.S. Federal Reserve Board building is shown behind security barriers in Washington.
FILE - The U.S. Federal Reserve Board building is shown behind security barriers in Washington.

The Federal Reserve System is the United States' central bank, a nationalized institution that regulates the production and distribution of money and credit to help ensure the efficient operation of the U.S. economy.

According to the system, also known as the Fed, it performs the following five broad functions:

— Manages monetary policy to encourage maximum employment, stable prices and moderate long-term interest rates.

— Fosters the reliability of the financial system and suppresses systemic risks.

— Promotes the integrity and safety of financial institutions.

— Nurtures the safety and efficiency of the nation's payment and financial settlement system.

— Promotes consumer protection and community development.

Congress created the Fed in 1913 after a series of financial alarms. The roles and responsibilities of the Fed expanded over the years following events such as the Great Depression in the 1930s and the Great Recession that began in December 2007.

The Fed's governing body is the seven-member Board of Governors in Washington. The members, including the chairman and vice chairman, are appointed by the president and confirmed by the Senate.

Twelve Federal Reserve banks in cities throughout the U.S. are included in the system, serving as "operating arms" that gather regional economic data to help the Fed monitor the economy and develop monetary policy.

The Fed's monetary policy decisions are made by the Federal Open Market Committee, which includes board members and presidents from the regional banks.

Although the Fed is an instrument of the federal government, it considers itself independent because its monetary policy decisions do not have to be approved by the president or anyone else in the executive or legislative branches of government.