Money & Finance › The Fed, money supply & inflation
The Federal Reserve System (the Fed)
Since 1913· Institution or agency
Fact, law or dataA rule, statute, definition or measured number.
The central bank of the United States: the banks' bank, setter of short-term interest rates and lender of last resort.
See it on the Money & Finance map →How it works
Created by the 1913 Federal Reserve Act, the Fed has a seven-member Board of Governors in Washington, appointed by the President and confirmed by the Senate for 14-year terms, plus 12 regional Reserve Banks. It sets short-term interest rates, lends to banks in emergencies, supervises large banks and runs payment systems. It funds itself from interest on the bonds it holds and sends profits to the Treasury. Kevin Warsh became chair in May 2026.
Why it matters
It controls the price of short-term money in the world's reserve currency, so its moves ripple into mortgage rates, cap rates, stock prices and exchange rates worldwide.
Think of it like
The banks' bank: it holds their reserve accounts, lends to them in a pinch and sets the rate they charge each other overnight.
Facts, rules and data
The Federal Reserve Act as amended; FOMC statements, minutes and transcripts released after five years; the weekly balance-sheet report (H.4.1); congressional testimony.
Debates and risks
How far the Fed should go beyond setting rates, from bond buying to bank rules, and how independent of the President it really is, are live 2026 debates.
Inside this (10)
- Federal Open Market Committee (FOMC)
- Paul Volcker and the 1979–82 inflation fight
- Federal Reserve Act (1913): Board and 12 regional banks
- The discount window: lender of last resort
- Alan Greenspan, Fed chair 1987–2006
- Ben Bernanke, Fed chair 2006–2014
- Janet Yellen, Fed chair and Treasury Secretary
- Jerome Powell, Fed chair 2018–2026
- Fed independence and political pressure
- Kevin Warsh, Fed chair since May 2026
Connections (16)
▸Fiat money: currency backed by law and trust, not metal is managed by The Federal Reserve System (the Fed)Fact, law or data
The connection
With no gold behind the dollar, nothing physical limits how much can be created. The Fed's job is to keep it scarce enough to hold value: it issues Federal Reserve notes, creates bank reserves electronically, and raises or lowers rates to control how fast money and credit grow.
When and why
Federal Reserve notes date from 1914; the system became fully fiat after the Nixon shock of August 1971 ended gold convertibility for foreign governments.
How we know
Every bill reads 'Federal Reserve Note', and the Fed's balance sheet lists currency in circulation, about $2.4 trillion in 2025, as a liability.
Debates and risks
Whether fiat money without metal discipline must lose value is debated; the dollar has lost roughly 85–90% of its purchasing power since 1971, but gradually rather than in a sudden collapse.
▸Federal Reserve Act (1913): Board and 12 regional banks created The Federal Reserve System (the Fed)Fact, law or data
The connection
The act set up the system's parts: a Federal Reserve Board in Washington, 12 regional Reserve Banks whose stock member banks must hold, and a new currency, Federal Reserve notes. Later amendments, especially the Banking Act of 1935, shifted power toward the Board and the FOMC.
When and why
Signed by Woodrow Wilson on December 23, 1913; the 12 Reserve Banks opened on November 16, 1914, in cities from Boston to San Francisco.
How we know
The statute itself, still in force as amended, and the Fed's own published histories of its founding.
Debates and risks
Why those 12 cities were chosen, including two in Missouri (St. Louis and Kansas City), still raises questions about politics in the 1914 selection.
▸The Federal Reserve System (the Fed) sets policy through Federal Open Market Committee (FOMC)Fact, law or data
The connection
The Fed's most important decision, the level of short-term interest rates, is made by the FOMC rather than the Board alone. The committee votes on a target range, then instructs the New York Fed's trading desk to use its tools so market rates stay inside it.
When and why
Created by the Banking Acts of 1933 and 1935; meets in Washington eight times a year, more often in emergencies.
How we know
Each FOMC statement lists members' votes, and an accompanying directive instructs the New York Fed desk; minutes follow three weeks later.
Debates and risks
Whether regional bank presidents, chosen by their banks' boards rather than by elected officials, should vote on national policy is periodically challenged in Congress.
▸The Federal Reserve System (the Fed) conducts Monetary policy: steering interest rates and creditFact, law or data
The connection
Monetary policy is managing the cost and quantity of money and credit to meet economic goals. The Fed sets short-term rates, buys or sells bonds, and signals future rates. Higher rates cool borrowing, spending and inflation; lower rates do the reverse, with effects arriving over roughly one to two years.
When and why
Since 1914; the modern approach took shape after the 1951 Treasury–Fed Accord and the Volcker era of 1979–82.
How we know
FOMC statements, the twice-yearly Monetary Policy Report to Congress, and decades of research on how rate changes move the economy.
Debates and risks
How long policy takes to work, Friedman's 'long and variable lags', and how strongly rates still bite in today's economy remain debated.
▸The Federal Reserve System (the Fed) relies on Fed independence and political pressureMainstream view
The connection
Rate hikes hurt before they help, so elected officials facing votes often want lower rates. Independence lets the Fed take unpopular steps to control inflation: governors serve 14-year terms, can be removed only 'for cause', and the Fed funds itself instead of depending on annual budgets from Congress.
When and why
The Treasury–Fed Accord of March 1951 ended wartime pegging of bond yields; tenure protections are built into the 1913 and 1935 laws.
How solid is the link?
Cross-country studies find more independent central banks tend to have lower inflation; Nixon tapes record his 1971–72 pressure on chair Arthur Burns, before inflation surged.
Debates and risks
Critics on left and right say an unelected Fed holds too much power; others warn that weakening it risks 1970s-style inflation.
▸Fed bank stress tests are run by The Federal Reserve System (the Fed)Fact, law or data
The connection
The Fed writes the scenarios, runs its own models on each bank's detailed loan data and publishes the results each June. Each bank's projected capital drop sets its stress capital buffer, at least 2.5%, which in turn limits how much it can pay out in dividends and buybacks.
When and why
The Fed Board in Washington: a one-off 2009 test, part of Treasury Secretary Timothy Geithner's bank rescue plan, then yearly from 2011.
How we know
The Fed's published scenarios, methods and bank-by-bank results; the 2020 stress capital buffer rule.
Debates and risks
Banks sued the Fed in December 2024 over its undisclosed models and scenarios; the Fed then proposed publishing them for comment and averaging results over two years.
▸Payment rails: how money moves from account to account are partly run by The Federal Reserve System (the Fed)Fact, law or data
The connection
The Fed runs Fedwire for large transfers, FedACH for batch payments and FedNow for instant ones, and most dollar payments finally settle as moves between banks' accounts at the Fed. Private rivals exist: the big banks' Clearing House operates CHIPS, an ACH network and RTP, while Zelle rides on top of bank accounts.
When and why
Fedwire began by telegraph in 1918; the first ACH ran in California in 1972; FedNow launched July 20, 2023.
How we know
The Fed's annual financial-services data; the Monetary Control Act of 1980 requires the Fed to charge private-sector-like prices for these services.
Debates and risks
Banks questioned whether the Fed should compete with private networks; FedNow's uptake has been gradual, with over 1,000 institutions joined by 2025.
▸Long-Term Capital Management collapse (1998) prompted a bank rescue organized by The Federal Reserve System (the Fed)Fact, law or data
The connection
LTCM, a hedge fund run by star bond traders and two Nobel-winning economists, had borrowed about 25 times its capital and held over $1 trillion in derivatives. Russia's August 1998 default triggered huge losses. Fearing a fire sale would hit markets broadly, the New York Fed gathered 14 banks, which put in $3.6 billion; no public money was used.
When and why
Federal Reserve Bank of New York, September 23, 1998, led by its president William McDonough; Greenspan's Fed then cut rates three times that fall.
How we know
Fed testimony to Congress in October 1998 and the President's Working Group report of April 1999 document the rescue.
Debates and risks
Did the rescue reduce systemic risk, or teach big players to expect Fed help, encouraging the leverage that blew up in 2008?
▸The US financial regulators include The Federal Reserve System (the Fed)Fact, law or data
The connection
The US splits oversight among many agencies. The Fed supervises bank holding companies, state banks that join the system and, since 2010, the largest financial firms, and runs annual stress tests. The OCC, FDIC, SEC, CFTC and state regulators cover other pieces.
When and why
Fed supervision since 1913; holding-company powers from 1956; Dodd–Frank in 2010 added a vice chair for supervision and oversight of systemic firms.
How we know
Statutory authority in the Bank Holding Company Act and Dodd–Frank; the Fed's twice-yearly Supervision and Regulation Report.
Debates and risks
Whether the Fed should supervise banks at all, given possible conflicts with monetary policy and its misses at SVB in 2023, is debated.
▸The repo market: overnight loans backed by Treasuries is backstopped by a standing facility at The Federal Reserve System (the Fed)Fact, law or data
The connection
In repo, firms borrow cash overnight by pledging Treasuries as collateral. When repo rates briefly spiked to about 10% in September 2019, the Fed rushed in cash. In July 2021 it created the Standing Repo Facility, lending against Treasuries at a set rate, meant to cap how high repo rates can go.
When and why
New York Fed trading desk; spike on September 17, 2019; facility created July 2021; record use in late October 2025.
How we know
The New York Fed publishes daily facility use and repo rates, including SOFR.
Debates and risks
Whether dealers will use the facility in a real crunch without stigma, and how large it should be, are debated.
▸Check 21 Act (2003): check images replace paper let check processing shrink at The Federal Reserve System (the Fed)Fact, law or data
The connection
The Fed had been the biggest check clearer, running dozens of processing centers and chartered courier flights. Once images replaced paper, the Reserve Banks cut paper check sites from 45 to one, in Cleveland, by February 2010, with image processing in Atlanta. Check clearing shrank to a small part of the Fed's priced services.
When and why
The Reserve Banks' 2003–2010 consolidation; Atlanta ended paper processing on February 26, 2010.
How we know
Federal Reserve press releases on consolidation, its Check 21 report to Congress, and Regulation CC changes that made more checks 'local' as regions merged.
Debates and risks
Whether the Fed should keep clearing checks at all, or leave it to private image exchanges as volumes keep falling.
▸ACH: Nacha's batch network for payroll, rent and bills clears partly through FedACH at The Federal Reserve System (the Fed)Fact, law or data
The connection
The Fed is one of the two ACH operators: FedACH sorts and delivers batches between banks, and The Clearing House's EPN handles the rest. Either way, final settlement is a debit and credit to banks' accounts at the Fed, which also sets the processing windows, including same-day ACH.
When and why
FedACH since the 1970s; same-day ACH settlement windows added in 2016 and a third in 2021.
How we know
The Fed's FedACH volume statistics and Operating Circular 4, which governs the service.
Debates and risks
Whether the Fed should compete with private operators in ACH, and now in instant payments, is a long-running debate.
▸Anti-CBDC Surveillance State Act (passed House; not law) would bar retail accounts at The Federal Reserve System (the Fed)Fact, law or data
The connection
Today only banks and certain other institutions hold accounts at the Fed. The bill would forbid the Fed from offering accounts or services directly to individuals, closing off 'FedAccount' ideas floated by some Democrats and academics, and from using a CBDC to run monetary policy.
When and why
Washington; led by Rep. Tom Emmer in the House, with Senate allies such as Ted Cruz.
How we know
The bill text, H.R. 1919 in the 119th Congress, and House floor debate.
Debates and risks
Whether barring individual accounts limits future options, such as sending emergency or benefit payments directly from the Fed.
▸The Federal Reserve System (the Fed) operates Fedwire Funds Service: the Fed's wire systemFact, law or data
The connection
The Reserve Banks run Fedwire as a priced service: any bank with a Fed master account can send and receive, paying per-transfer fees that by law must recover costs. The Fed also extends intraday credit, 'daylight overdrafts', so payments keep flowing before incoming funds arrive.
When and why
Since 1918, when Reserve Banks began moving funds by telegraph; computerized from the 1970s; the Monetary Control Act of 1980 required the Fed to price its services.
How we know
Fed operating circulars and fee schedules, the Monetary Control Act, and the Fed's payment-system risk policy on daylight overdrafts.
Debates and risks
Whether Fedwire should extend to weekends, and how its role will change as FedNow and private networks grow.
▸Flow of funds: the Fed's Z.1 map of who owes what to whom is compiled quarterly by The Federal Reserve System (the Fed)Fact, law or data
The connection
Staff at the Fed Board in Washington compile Z.1 every quarter, combining bank reports, Treasury and SEC filings, insurance and pension data, and the Commerce Department's national accounts. The Fed uses it to watch leverage and financial stability; economists use it to track who holds the nation's debt and wealth.
When and why
Federal Reserve Board, Washington; quarterly since 1955, released about ten weeks after each quarter ends.
How we know
Each release, and the Fed's Financial Accounts Guide, document the sources and methods behind every table.
Debates and risks
Some series are estimated or residual, and benchmark revisions can rewrite years of history, so early readings are provisional.
▸The Federal Reserve System (the Fed) lends dollars abroad through Fed dollar swap lines and the FIMA repo facilityFact, law or data
The connection
The FOMC authorizes the lines and the New York Fed runs them. The Fed credits a foreign central bank with dollars and takes its currency; that central bank lends the dollars to local banks and bears their risk. At maturity the swap reverses at the original exchange rate, so the Fed takes no currency risk.
When and why
A swap network existed from 1962; lines were revived December 12, 2007 with the ECB and the Swiss National Bank.
How we know
FOMC statements and minutes, H.4.1 balance-sheet data, and the Fed's transaction-level swap disclosures required since the 2010 Dodd-Frank Act.
Debates and risks
Who gets a line has no published criteria, and most emerging economies have none.