Federal Reserve Free Essay Samples & Outline

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Sample Essay On Federal Reserve

The Federal Reserve System was created on December 23, 1913, coming from the enactment of the Federal Reserve Act. The Federal Reserve was formed largely in response to several financial panics that had grappled the United States of America. The Federal Reserve can be described as the central banking system that exists in the United States of America (Wicker, 2005). The Federal Reserve mission is to ensure that there are stable prices in the United States, the interest rates are moderate and there is maximum employment in the economy. This mission has however, over the years expanded and currently the Federal Reserve explores the nation’s monetary policy.

The Structure of the Federal Reserve can be described as being complex. This is because it is firstly composed of a Board of Governors that is presidentially appointed, the Federal Open Market Committee (FOMC), Regional Federal reserve banks that are normally located in the major cities in the United States and several privately owned United States member banks. It is of the essence to understand that the Federal Reserve has both the public as well as private stakeholders and consequently, it is able to serve fairly the interests of private bankers and the General Public (Wells, 2004).

The Federal Reserve is considered one of the most powerful institutions in all of America given that it conducts independent monetary decisions, which does not have to be approved by anyone else including the President or anybody else in the government. It is for this reason that the span of the terms of the members of the Board of Governors often spans several presidential as well as congressional terms (Michael, 1968).

The monetary policy generally influences the availability as well as the cost of money in a bid to promote national economic goals. There are three main tools that the Federal Reserve installs in order to influence the amounts of reserves that exist in the different private banks; the first is the open market operations. It involves the purchase as well as the sales of the U.S Treasury as well as Federal securities. This can be described as the main principal toll used in the implementation of the monetary policy. The second monetary policy tool that is used by the Federal Reserve is the discount rate.

This interest rate is often charged to commercial banks as well as other institutions that accept deposits on the different loans that they receive from the Federal Reserve Bank. The last tool is the Reserve requirements and it is the amount of funds that the Federal Reserve Bank often wants in their holdings from the different banks, and depository institutions. These three tools of monetary policy have been in use for the longest time in the United States (Marrs, 2000).

However, it is of the essence to note that there is indeed several times that the bank goes out of its way in order to control inflation and it might use several different factors as compared to the three listed above. For example, there is the existence of a term auction facility, which is a tool that offers term funding to depository institutions in bi-weekly auctions for fixed amounts of credit (Wilson, 2011).

In conclusion, the Federal Reserve System is the central banking in the United States. It structure incorporates both the private as well as public sector and ensures a balance between them. It uses three main monetary policy tools. Firstly, there are the open market operations, discount rate and the Federal Reserve requirements for funds.


Wells, R., (2004) The Federal Reserve System: A History. Sage: New York.
Wicker, E., (2005) The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed . Ohio State University Press.
Marrs, Jim (2000). "Secrets of Money and the Federal Reserve System". Rule by Secrecy (HarperCollins): 64–78.
Wilson, Linus; Wu, Yan (August 22, 2011). "Does Receiving TARP Funds Make it Easier to Roll Your Commercial Paper Onto the Fed?". Social Science Electronic Publishing.
Michael D. (1968), "The Political Structure of the Federal Reserve System," American Political Science Review, Vol. 55.