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What Is The Role Of The Federal Reserve

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The Federal Reserve was established in 1913 to provide liquidity to the financial system as a whole and to help the economy when there is a panic. Most Americans cannot tell the role of the Federal Reserve. The typical American thinks that the Federal Reserve prints money when this is not so. The role of the Federal Reserve is to control the money supply, set interest rates and basically be the guardian of the economy to make sure there is financial stability. Before the World War, Great Britain was the financial leader but by 1914 when the world war ended Great Britain went bankrupt. This caused the United States to become the new financial leader causing the value of the dollar to become the leading currency of the world. This is when the term monetary policy was created. Monetary policy is the power of the Federal Reserve to create or take away money. This way they have the ability to control the economy. If the Federal Reserve was to decide to take money out of the reserve this would cause interest rates to rise. …show more content…

This caused investors to buy into the stock market because they thought there was a one way track for the market and that was up. Then when the Federal Reserve increased rates this caused the stock market to crash. Long-term Capital Management is a hedge fund firm that traded high leverage securities. This firm was extremely important, so important that if this firm was to fail the whole financial system would collapse. So the Federal Reserve took action and bailed the company out. The Greenspan Put was boosting the stock market by decreasing interest rates which would then cause money to flow back into the

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