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0-15 min
Economics

The Fed's Role Today

OVERVIEW

In this video assignment, discover how the Fed affects your life by reviewing the three key functions of a central bank and how the Fed impacts the economy.

So, do you remember the three major functions of the Federal Reserve? Sure. The payments system, supervision and regulation and monetary policy. The Fed isn't directly in charge of every aspect of the nation's payment system, but it's a big provider of payment services, and it helps ensure that payments are made safely and smoothly. Payment systems are what enables money to move from one party to another. Safe, secure efficient payment system is vital to the functioning of our economy. As for supervision and regulation, for the thousands of financial institutions it has authority over, the Fed makes sure they stay healthy and sees that they conform to rules and regulations. So, we clearly have to have in our sights just the trade-off between too much regulation that would stifle the economic activity and too much risk taking that would jeopardize the financial stability or the safety and soundness of the financial system or any institution. By influencing interest rates throughout the economy, the Fed's monetary policy works to achieve its goals of price stability and maximum employment. Monetary policy making can be very challenging. I think about it as a quarterback who throws the ball not directly at the running receiver but ahead of the receiver. In the same way, when we make monetary policy, we don't want to just think about where the economy is today,
but what we think it's going to be when those policies begin to have their full influence. There have been banks in the United States since the country was new, but the Federal Reserve has only been around since 1913. There will always be times of prosperity and times of recession of course, but the Fed is essential to keeping our economy running as smoothly as it does. The Fed's aim is to make the times of prosperity as long as possible, while making sure the times of recession, when they do come, are as short as possible. And remember, because you are a part of the economy, the Federal Reserve affects your life.

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