We talk about the Federal Reserve and interest rate hikes every day, but what exactly is the Federal Reserve? This is the central bank of the United States, but it is made to be like a mysterious organization. It was established on December 23, 1913, with the purpose of making the US economy more stable and powerful.
**Structure of the Federal Reserve**:
1. **Federal Reserve Board**: 7 directors, appointed by the president, with a term of 14 years. It is like a top team responsible for handling the US monetary policy.
2. **Regional Federal Reserve Banks**: 12 regional branches, each with a branch responsible for implementing policies.
**Mission of the Federal Reserve**:
Their job is to keep the economy stable by manipulating money supply and interest rates. It is like vaccinating the economy so that it does not get sick and can grow healthily.
**Where does the money come from**:
The money of the Federal Reserve mainly comes from the interest on US Treasury bonds, agency bonds and mortgage-backed securities (MBS). Just like you lend money to others, others pay you back the interest, and they make money from this.
**Public and private components**:
The Federal Reserve is both a bit public and a bit private. Member banks are private, but they must hold shares in the Federal Reserve. Note that these shares cannot be transferred or distributed. It's like you bought a lottery ticket, but you can't sell it or receive dividends. You can only wait to win the jackpot.
**Regulation and transparency**:
The Federal Reserve's accounts must be audited every year, and the results are public, so anyone can go and see it. It's like your parents checking where your pocket money is spent every month to make sure you don't spend it indiscriminately.
**To sum up**:
The Federal Reserve, to put it bluntly, is a mixture of public and private elements. Although private banks are involved, it mainly serves the public interest and economic stability of the United States. Its existence is like an economic bodyguard that can make money and keep you safe.
So, don't be scared by those complicated rules and regulations. The Federal Reserve is an economic boss with both power and responsibility, ensuring that you can live a peaceful life.
