FED 101
Due
to periodic financial panics, which caused bank failures, business
bankruptcies, and general economic downturns, Congress created the Federal
Reserve System. In fact, it was one particularly severe crisis in 1907 that
prompted Congress to establish the National Monetary Commission (NMC),
which was charged with bringing forth proposals to create an institution that
would counter financial disruptions of these kinds. Subsequent to the creation
of the NMC, Congress passed the Federal Reserve Act, which
President Woodrow Wilson signed into law on December 23, 1913.
The
Board of Governors of the Federal Reserve System is made up of seven members
appointed by the President of the United States and confirmed by the U.S.
Senate. The Federal Open Market Committee (FOMC) consists
of 12 members: seven members of the Board of Governors of the Federal Reserve
System; the president of the Federal Reserve Bank of New York; and, for the
remaining four memberships, which carry a one-year terms.
The FOMC holds eight regularly scheduled meetings
per year to direct the conduct of open market operations by the Federal
Reserve Bank of New York in a manner designed to foster the long-run
objectives of price stability and sustainable economic
growth.
One
truly amazing fact is that the full term of a Board member is fourteen years!
Imagine that, fourteen years! Talk about insulated from public opinion! The
appointments are also staggered, so that one term expires on Jan. 31 of
each even-numbered year. After serving a full term, a Board member may not be
reappointed, unless that person is appointed to serve out the term of a
departing Board member.
The Chairman and the Vice Chairman of the Board are appointed by the President
and confirmed by the Senate, just as a cabinet position. The terms for
these positions are four years. A Washington staff of about 1,700 supports the
Board of Governors.
The FOMC has three main tools to conducts monetary policy:
-
Open
Market Operations —