The Federal Reserve System. How it operates, its future role in monetary policy & Discuss US fiscal policy: how it is managed, directed, controlled, formulated – Term Paper Example

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Introduction The role of a central bank in any economy is to manage the monetary policy of the country while ensuring that it manages to achieve broader macroeconomic objectives. One of the key objectives of any central bank is therefore to ensure that inflation within economy remains under control. The flow of money within the economy therefore should be managed in such a manner that it supports the achievement of low inflation, economic stability as well as the low unemployment level within the economy. The Federal Reserve System or Fed is the central bank of US and is operating at both the federal as well as State level.

Created in 1913 through Federal Reserve Act, it has served US as one of the leading economic policy making institutes in the country. Its major mandate is to regulate the monetary policy in the country in order to support the broader economic objectives of economic stability, low inflation as well as the unemployment level. President of United States of America appoints the chairman of the Fed along with the seven members of the board of governors.

Board of governors is required to serve for the period of 14 years however; the approval of the Congress is required in order to give legal credence to the appointment of the members of the Board. 1 This paper therefore will discuss Fed, how it operates, and its role in the future monetary policy besides discussing its structure and broader objectives it is required to achieve. The Role of Central Bank Before discussing The Federal Reserve System, it is important to present a discussion on the role of central bank within the economy and how it supports it. There are three important tasks or functions of a central bank within an economy i. e.

to issue currency notes, regulate monetary policy as well as control the inflation. Based on these broader objectives, a central bank therefore also serves as the banker of the government and serves as lender of lost resort for the banking system in the country. Its role is therefore not just limited to the management of monetary policy within the economy but also to ensure that the whole financial system remains stable and intact.

(Blinder) The overall primary function of a central bank is to regulate the monetary policy of a country however, there are also other functions also including managing interest rates within the economy, ensuring that inflation remains within the acceptable level and issuance of currency notes as legal tenders. Managing the level of unemployment at a certain level is also one of the key tasks of a central bank.

Bibliography

Blinder, Alan S. Central Banking in Theory and Practice . Boston: The MIT Press, 1999.

Broz, J. Lawrence. The international origins of the Federal Reserve System. New York: Cornell University Press, 1997.

Greider, William. Secrets of the Temple: How the Federal Reserve Runs the Country. New York: Simon & Schuster, 1989.

Krugman, Paul and Robin Wells. Macroeconomics. New York: Worth Publishers, 2009.

Tett, Gillian. US Banks Borrow $50 Bn via Fed Facility. 18 Feb 2008. 22 July 2011 <http://www.ft.com/cms/s/0/66db756a-de5d-11dc-9de3-0000779fd2ac.html#axzz1SxPlMbtY>.

Wells, Donald R. The Federal Reserve System: A History. New York: McFarland & Company, 2004.

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