Trading Academy - Federal Reserve

Trading Academy – Federal Reserve

The Federal Reserve System is the central bank of the United States. It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest.

The Federal Reserve

  • Conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy
  • Promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad
  • Promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole
  • Fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments
  • Promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations

Important Notes

  • Federal Reserve Operators in Dual mandate
  • Federal Reserve inflation target is 2%
  • Federal Reserve Unemployment target is 4.2%

The Federal Reserves Dual Mandate

The Federal Reserve’s dual mandate, established by Congress in the Federal Reserve Act, directs the central bank to pursue two primary economic objectives:

  1. Maximum Employment: This goal aims for the highest level of employment that the economy can sustain without triggering inflation. The Fed monitors various labor market indicators, such as unemployment rates and job growth, to assess employment levels.
  2. Price Stability: This objective seeks to maintain stable prices, thereby preserving the purchasing power of the currency. The Federal Reserve interprets this as targeting a 2% annual inflation rate, measured by indices like the Personal Consumption Expenditures Price Index.

By focusing on these two goals, the Federal Reserve aims to foster a stable economic environment conducive to sustainable growth. It’s important to note that while the Federal Reserve Act also mentions “moderate long-term interest rates,” this is generally seen as a by product of achieving maximum employment and stable prices, and thus the mandate is commonly referred to as the “dual mandate.”