LearnVestonomics: What Is The Federal Banking System?

Tomorrow, the U.S. Federal Reserve will have a meeting; big decisions are most likely in the works for November or December, namely whether the Fed will buy hundreds of billions of dollars in bonds as a way to strengthen the economy. Right now is a scary and exciting time for the Fed because three of its seats are waiting to be filled by President Obama’s nominees. Although the Fed usually has seven governors, it has been operating with only four since former Vice Chairman Donald Kohn retired at the beginning of September. Here’s exactly how the Fed functions and why you should care:

1. President Obama’s Appointments Will Have Big Implications For The Economy
The seven people on the board of the Fed are so important because the Federal Reserve’s job is to help keep prices stable, interest rates low, and the economy functioning. It does this by acting as the bank of choice for the federal government and by helping to regulate the banks that provide services to the American public. It does everything from distributing newly-printed cash to interacting with foreign central banks. So, as the Fed tries to decide whether to back off or to intervene further in the economy, Obama can use these new appointees as a significant opportunity to influence economic policy.


2. The Fed Both Stimulates The Economy And Curbs Inflation

It does this by raising and lowering interest rates, and those changes are then passed on to consumers. Lower interest means that people are more likely to borrow money to buy things like cars and new homes—which stimulates the economy. Higher interest rates mean the opposite, that people will put more in their piggy banks—which can help curb inflation.

3. The Fed Is Accountable To Congress, But It’s Meant To Be Non-Political
Chairman Ben Bernanke, for instance, has been the chairman under Presidents George W. Bush and Barack Obama.

  • Ana

    Keep the infographics coming and thank you for showing us the face(s) of our money, aka the fed

  • Billie

    I like this but wondering how these guys fit in with Geithner et al

  • Claudette5

    Whats everyone’s thoughts on Bernanke? Isn’t he the one who got us into this mess?

  • Victoria1972

    That’s debatable, but at one point cramer certainly wasn’t happy with himnhttp://www.youtube.com/watch?v=rOVXh4xM-Ww

  • DanielleStaub

    LOL!

  • JimCramer

    THE FED IS ASLEEP!!!!

  • DanielleStaub

    A-SLEEP!!

  • Ellanagler

    So how much does Obama have to do with the economy besides appointing the Board of Governors? Does he direct the Board as “the boss” or is he left out of the general process?

    • Caroline Waxler

      Thanks, Ellen, for your comment! Please keep reading.
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      Caroline
      LearnVest’s Chief Content and Community Officer

  • Erika O’Connor

    Thank you LearnVest for providing a valuable educational resource. I read your newsletter daily and share it with friends and students. Keep the good work up!

  • Anonymous

    Thank YOU, Erika!nCarolinenLearnVest’s Chief Content and Community Officer

  • Steph C Costa

    Agreed! <3 infographics!

    • Caroline Waxler

      And we love you! Saw your tweet–bummed you won’t be there tonight, but please tweet us questions!
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      Caroline
      LearnVest’s Chief Content and Community Officer

  • http://blog.laurenandelissa.com Lauren Lyons Cole

    Great question Ellanagler! Obama is not the boss of the Federal Reserve, although he does appoint the members (with the approval of congress), so he still has quite a bit of influence over the process. They do make decisions independently of the president though.

  • See Fernando

    Thanks LearnVest for continuing explain the over complicated US Financial system.

    • Anonymous

      You’re welcome, we’re glad you like it.

    • Anonymous

      You’re welcome, we’re glad you like it.

  • Leda

    Thank you. I do get confused about all this.

  • Joleenloretta

    This is information that only some people understand and honestly, this is information that we all need to be aware of, and is an indicator of where our monies are spent, for what, and who actually benefits the most from allowing a president to “appoint his or her choice of canidates for a position that controls the how we can afford or not afford to even be a “middle class” citizen in the United States. Where in the job knowledge of the “appointees, is the question, and “What experience do you bring to this job, If you are appointed. your articles are great, tell us more!

  • Joleenloretta

    This is information that only some people understand and honestly, this is information that we all need to be aware of, and is an indicator of where our monies are spent, for what, and who actually benefits the most from allowing a president to “appoint his or her choice of canidates for a position that controls the how we can afford or not afford to even be a “middle class” citizen in the United States. Where in the job knowledge of the “appointees, is the question, and “What experience do you bring to this job, If you are appointed. your articles are great, tell us more!