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The Federal Reserve Essay

The Federal Reserve System was founded in the year 1913 and is considered the central bank of the United States. The purpose of the Federal Reserve is to provide the country with a more stable, safer, and flexible monetary and financial system. The country witnessed severe financial crisis in the late nineteenth century that had affected the banking and financial institutions considerably weakening the economy to a great degree.

Businesses were hampered and this prompted the Congress to establish the National Monetary Commission that proposed the creation of an institution that would help prevent and control financial crisis of this nature in future. The Federal Reserve Act was passed and on 23rd December 1913 President Woodrow Wilson signed the act into law. In 1913 when the Federal Reserve was established United States was a developing economy with agriculture as its prime occupation.

The founders of this institution “hoped to reduce financial instability, improve the quality of financial services, and strengthened the payments system” (Allan, Federal Reserve, 2003). The Federal Reserve is considered an independent financial body that does not require the President’s backing on its decisions. Since 1913 its role in the country’s economy has widened in scope and nature.

It is responsible for conducting the US monetary policy influencing the monetary and credit policies of the country with the objective of creating more employment, and controlling market prices and bank interest rates. The institution is also involved in supervising and regulating banking institutions to ensure the safety of the country’s banking and financial system. It is instrumental in analyzing the economic stability of the country speculating any financial crisis or disruption that might imbalance the financial markets.

Its plays a crucial role in providing financing services to depository institutions, the government of United States, and the foreign official institutions. The Federal Reserve System is not a private, profit-making institution. It is an independent body within the government framework looking after the interests of both the public and the private financial institutions in the country.


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