Business, Legal & Accounting Glossary
The Federal Reserve Board or the ‘Fed’ as it’s known, is the U.S. central bank – the equivalent of our own Bank of England.
The US central bank is actually made up of 12 Federal Reserve Banks from across the country.
The Federal Reserve Board sets the Fed’s monetary policy.
Implementation of most Federal Reserve Board monetary policy objectives occurs in the form of open market operations conducted by the Federal Open Market Committee, or FOMC, in New York. Federal Reserve Board members, including the Chairman and Vice-Chairman, are political appointees.
Federal Reserve Board meetings are also attended by a rotating subset of the 12 individual Federal Reserve Bank branch presidents.
Some Federal Reserve Board meetings are open to the public, but meetings about monetary policy are always closed.
The Federal Reserve Board meets in Washington, DC, generally twice each month.
The ‘Fed’s’ role is :
The tool by which the ‘Fed’ controls monetary policy is via movements in the ‘Fed Funds’ interest rate. This is the interest rate at which banks in the U.S. lend to themselves. It’s a short term (day to day) rate.
It’s important, but not as influential as the ‘discount rate’ – the equivalent of base rates in the U.K.
The sheer size of the U.S. economy traditionally means that changes in interest rates announced in Washington immediately have a knock-on effect in the London financial markets as investors re-adjust to lower U.S. borrowing costs.
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This glossary post was last updated: 15th February, 2020