The Federal Reserve, often called “the Fed,” is the central bank of the United States. It was created in 1913 to make the nation’s financial system safer, more stable, and better able to respond to economic crises.
At its core, the Fed’s job is to manage the supply of money and credit in the economy. It does this mainly by setting interest rates, buying or selling government securities, and regulating banks. When the economy slows and unemployment rises, the Fed often lowers interest rates to encourage borrowing and spending. When inflation climbs too high, it raises rates to cool things down.
The Federal Reserve is made up of three main parts: the Board of Governors in Washington, D.C.; twelve regional Federal Reserve Banks across the country; and the Federal Open Market Committee (FOMC), which sets national monetary policy. The Board of Governors oversees the system and reports directly to Congress, though the Fed operates independently of political control to avoid short-term influence on long-term decisions.
Besides controlling interest rates, the Fed supervises banks to make sure they are financially sound and protects consumers in their dealings with lenders. It also provides financial services—like clearing checks and transferring money—to banks and the federal government.
Ultimately, the Federal Reserve’s goal is to promote stable prices, maximum employment, and a healthy financial system. It doesn’t control the economy directly, but its decisions strongly shape the environment in which businesses, consumers, and investors operate.