What Is The Fed And What Do They Do?

The Federal Reserve: A powerful presence within the finance world that is often overlooked but holds tremendous control over our economic well-being.

Chances are you’ve heard the term in the news—but if you’re like many of our clients, you may be wondering, what exactly is the Fed and what does it do? Whether you’re a working professional, run your own business, or are long-retired, it’s important to have a good understanding of what the Fed does so you can make more informed financial decisions.

So, let’s explore exactly what the Fed is, its role, and how its actions can influence your financial future.

What Is the Fed?

Simply put, the Federal Reserve is responsible for steering monetary policy and supervising the economic system—and it’s the top economic authority in the United States. Just like you trust your financial advisor to guide you toward your financial goals, the Fed is responsible for looking after the overall U.S. economy.

In fact, in their 2021 Public Service Publication, the Fed explains they “make decisions that help promote the health of the U.S. economy and the stability of the U.S. financial system.” This includes supervising financial institutions, setting interest rates, and steering the money supply.

Who Owns the Federal Reserve?

It’s often assumed that the Fed is owned by the government, but this isn’t the case. According to the Supreme Court’s ruling in Scott vs. Federal Reserve Bank of Kansas, even though the government maintains an “interest” in the Federal Reserve, it essentially operates as a privately owned corporation. This means the majority of ownership belongs to private banks within each district.

Understanding that the Fed is not a government entity but, rather, a privately owned corporation is crucial to making informed financial decisions. It empowers you to be better aware of how the Fed’s actions may impact your financial future, so you can prepare for potential policy shifts and adjust your portfolio as needed.

What Exactly Does the Fed Do?

As we’ve discussed, the Fed is responsible for several major functions when it comes to supporting the economy. It accomplishes these important tasks with the help of three key entities which form the Federal Reserve System. These are the Board of Governors, the Federal Reserve Banks, and the Federal Open Market Committee.

The Fed has 5 important jobs to help keep our country running smoothly and our money safe:

1. Manages the Nation’s Monetary Policy

The Fed helps ensure there are enough job opportunities, that prices remain steady, and that interest rates don’t climb too high (or drop too low).

2. Monitors Banks to Keep Them Stable and Strong

The Fed keeps watch over financial institutions, like banks, to verify they are behaving responsibly and making decisions in everyone’s best interest.

3. Mitigates Major Money Problems in Our Economic System

The Fed carefully looks to make sure there are no potential problems that could affect a lot of people—and steps in if necessary in the U.S. and other countries.

4. Ensures Payment Systems Are Fast and Secure

When you’re making payments or purchases, the Fed helps it get done safely and quickly.

5. Encourages Consumer Safety and Helps Neighborhoods Grow

The Fed sees to it that consumers are treated fairly when making purchases and that communities can grow stronger. How? By guarding against unlawful business practices and by creating new rules to address major money problems people may be having.

What it Means for Your Money

Understanding what the Fed is and what they do is important to pursue your long-term financial stability. Our Black Walnut Wealth Management team keeps a watchful eye on the Fed’s actions to keep your investment strategies in line with your goals, life stage, and risk tolerance. To get in touch, you can schedule a 15-minute introductory meeting by calling us at (231) 421-7711 or using our online calendar.

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