Kavan Choksi Provides

Kavan Choksi Provides a General Overview of the Federal Reserve

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The Federal Reserve, or the Fed is the most powerful economic institution in the United States. It was created by the Federal Reserve Act of 1913 in order to counter the financial panics and bank runs, like the Panic of 1907, which led to a massive fall in the US stock market, along with multiple bank bankruptcies. As per Kavan Choksi, over the years Congress added a number of responsibilities to the Fed’s job description. Today the Fed’s responsibilities include monetary policy, financial stability, institutional safety,  and consumer protection.

Kavan Choksi talks about important aspects of the Federal Reserve

The Fed is divided into three parts, the Federal Reserve Board, Federal Reserve banks and Federal Open Market Committee (FOMC). The Federal Reserve Board, or the Board of Governors, basically is a centralized governing body that supervises the regional banks. It comprises of seven members that are nominated by the president and confirmed by the Senate. These members serve 14-year terms.

There are 12 Federal Reserve Banks in the United States. These banks implement Fed policy and make sure that the country’s financial system runs in a smooth manner. This is done by lending to commercial banks and enforcing regulations to keep the system liquid. The Federal Reserve Banks often pull together local information that tends to be used for broader monetary decisions.

The Federal Open Market Committee (FOMC) comprise of 12 voting members. These members decide the monetary policy of the country. This includes setting the federal funds rate, as well as controlling the money supply of the nation by buying and selling securities. In order to make policy decisions, the FOMC meets eight times a year. It comprises of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, as well as four other Reserve Bank presidents that rotate every year.

The federal funds rate is the central interest rate of the US financial market. It essentially is the rate at which banks may lend balances to each other overnight. It influences other interest rates throughout the economy, like mortgage rates and credit card rates. Lowering or raising the fed fund rates may have far-reaching effects as the change ripples throughout the financial system.

As per Kavan Choksi, reserve bank presidents and Fed governors submit their economic projections toward the end of every quarter leading into the subsequent FOMC meeting. Such projections are compiled into a series of graphs and charts that show their composite projections on changes in GDP or gross domestic product, inflation and the unemployment rate. One of these charts additionally shows the federal funds rate that every participant believes would lead to the right level of price stability and employment.

Each Federal Reserve bank maintains communication with members of the business community in its region. This includes business leaders, market specialists, and economists. They do so to gauge local economic conditions. Federal Reserve banks also gather perspectives from community organizations to capture a broader range of viewpoints on the economy, along with input from district banks.

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