According to the Federal Reserve Systemï¿½s website, ï¿½the Fedï¿½ï¿½as it is often calledï¿½is the fiscal agent for the U.S. government, created by Congress to provide the nation with a more flexible yet more stable and therefore safer monetary and financial system.
Below are just a few of the interesting facts about this little-known sector of our government:
Itï¿½s been around for more than 100 years ï¿½ The Panic of 1907 ï¿½a three-week period in October when the New York Stock Exchange fell almost 50 percent from its peak the year priorï¿½led Americans to call for a central bank. On Dec. 23, 1913, President Woodrow Wilson signed the Federal Reserve Act into law. Today, the organization is tasked with maintaining the U.S. Treasuryï¿½s checking account and processing payments such as Social Security, among many other roles and responsibilities.
It doesnï¿½t create money ï¿½ ï¿½With its monetary tools, [the Fed] can influence the money supply, while [the] U.S. Treasury actually prints money,ï¿½ Kim Porter of Bankrate.com wrote.
In reality, new money is created when private banks (which are all technically stockholders, or part owners, of the Fed) make loans, said Morgan Housel, investment expert with The Motley Fool.
ï¿½And the Fed doesnï¿½t really have any control [over] that,ï¿½ she continued. ï¿½They can try to influence that with lower interest rates and changing the amount of whatï¿½s called bank reserves, which is the amount of money [financial institutions] hold at the Fed. So, they can try to influence it, but they really donï¿½t have any power over it.ï¿½
It doesnï¿½t determine interest rates for your car or home loans ï¿½ This is another common misconception. In fact, the interest rate that you would pay on your car loan or mortgage is set by the financial institution that is lending you that money. As with the creation of money, the Federal Reserve does influence financial institutionï¿½s rates with the rates it is moving around, but there are also many other factors at play that are totally removed from the Federal Reserve, such as your credit score and the housing market.
Itï¿½s extremely trustworthy ï¿½ Itï¿½s typical to be skeptical of both the banking system and the government, especially in a volatile economic environment, but they know what theyï¿½re doing. To begin with, there is a strong system of checks and balances in place.
ï¿½The financial statements of the Board of Governors and the 12 Reserve Banks are audited annually by public accounting firms,ï¿½ says the Fed website.
Furthermore, the organization is led by some of the brightest minds in the nation. For example, Bankrate.com said that Ben Bernanke, chairman of the Federal Reserve from 2006 to 2014, taught himself calculus in high school and also earned a near-perfect score of 1590 on his SAT.
You can follow the Fed on social media ï¿½ The Federal Reserve, in and of itself, is one big, profitable financial institution. And like you would with your community bank, you can follow the Fed on social media to see what it has been up to in the financial world. Chairman Bernanke held the first Fed press conference following a meeting of the Federal Open Market Committee (a group comprising seven members of the Board of Governors and five of the 12 Reserve Bank presidents, which determines the direction of monetary policy) on April 27, 2011, disclosing minutes and answering questions. The Fed also has a Twitter account, a YouTube channel and its own mobile application, and the Board of Governors has a Facebook page.
Hopefully, you now have a better understanding of what the Federal Reserve System actually does, and perhaps you can impress your friends with a few fun facts.