The Federal Reserve System

Key Takeaways

• Most large banks are members of the central banking system called the Federal Reserve System (commonly known as "the Fed").
• The Fed's goals include price stability, sustainable economic growth, and full employment. It uses monetary policy to regulate the money supply and the level of interest rates.
• To achieve these goals, the Fed has three tools:

1. it can raise or lower reserve requirements - the percentage of its funds that banks must set aside and can't lend out;
2. it can raise or lower the discount rate - the rate of interest that the Fed charges member banks to borrow "reserve" funds;
3. it can conduct open market operations - buying or selling government securities on the open market.