The U.S. Federal Reserve, the July rate decision, and the FOMC schedule going forward Federal Reserve Name and Overview

Federal Reserve Name and Overview

The official English name of the Federal Reserve System in the United States is “Federal Reserve” (the Fed), which is officially abbreviated as the Fed. In South Korea, it is often abbreviated as 연준 (연방준비제도) or Fed. In the U.S., the name Fed is used interchangeably with several other organizations in the media, so you may need to check which organization you’re referring to, but in most economic-related fields, the Fed is the Fed.

The Federal Reserve system is the central banking system of the United States of America, and because of the country’s influence around the world, it’s fair to say that the Fed has a very large impact on the global economy. The biggest role of the Fed that we know is the issuance of US dollar bills.

Federal Reserve Functions

In the United States, the Federal Reserve System (Fed) has the following main functions

Issuing US dollar bills
Setting monetary policy in the United States
Supervising and regulating banks and financial institutions
Maintaining the stability of the financial system
Provide financial services to the U.S. government, the public, and financial institutions.

Unlike central banks in other countries, the Federal Reserve System is composed of 12 Federal Reserve Banks, which are private companies, and the Board of Governors of the Federal Reserve System, which is an independent agency within the federal government. The chairman and directors of the Fed are nominated by the President of the United States and confirmed by the United States Senate. The Federal Reserve System in the United States is under government control because it is the central bank responsible for the economy of the United States, and all but a small portion of the profits generated by the Fed for shareholders belong to the U.S. Treasury, making it a de facto government agency.

The Federal Reserve System has only been around for about 100 years in the U.S. Initially, there was no Federal Reserve System and the federal government directly issued money with the approval of the U.S. Congress. Since the US has historically had very limited government power, the US Congress initially tried to interfere in the economy by establishing a central bank, but the existing banks, which already had tremendous influence on the US economy, opposed it. Then, in 1907, the US economic panic was directly triggered, and the US Federal Reserve System (Fed) was created.

Federal Reserve Structure

The Federal Reserve System divides the United States into 12 Federal Reserve Districts, each with a Federal Reserve Bank, which acts as the central bank. The 12 Federal Reserve Banks are overseen by the Board of Governors of the Federal Reserve System in Washington, DC. The Federal Reserve is independent of the U.S. Department of the Treasury.

The Federal Reserve is composed of seven members appointed by the president and confirmed by the Senate. The president and the chairman, who serves a four-year term, have independent authority to set monetary policy, including interest rates.

The Federal Reserve Board (FRB) and Its Key Duties

The Board of Governors of the Federal Reserve System (collectively, the Federal Reserve Board) is an independent agency of the U.S. federal government and the highest decision-making body of the Federal Reserve. The Board of Governors of the Federal Reserve System is a government agency, while the 12 private Federal Reserve Banks operate as private banks. The Chairman and Vice Chairman are appointed by the President, with Senate confirmation, to four-year terms, and the remaining seven members serve 14-year terms, with one member rotating off every two years.

The current members of the board are

Jerome Powell (Republican) – Chairman
Rachel Brainerd (D) – Vice Chair
Michael Barr (D) – Vice Chair
Michelle Bowman (R) – Member at Large
Christopher Waller (R)
Lisa Cook (D)
Philip Jefferson (D)

The Federal Reserve’s primary responsibilities include

Setting monetary policy
Managing and supervising the activities of Federal Reserve System member banks, bank holding companies, international financial institutions in the U.S., edge corporations, member banks’ external activities, and foreign banks’ activities in the U.S.
Margin Setting
Ensuring the smooth operation and continued evolution of the nation’s vast payment system
Developing and enforcing the implementation of federal laws related to consumer credit.

Monetary policy is one of the FRB’s most important tasks, setting the reserve requirement ratio and working with the Federal Reserve Banks on interest rate policy. In addition, open market operations are the Fed’s monetary policy tool, and the Board of Governors is required to record the FOMC’s actions on all questions related to interest rate policy.

What is open market operations?
It is the primary form of monetary policy conducted by a central bank. Open market operations control the amount of money in the market by buying and selling securities such as government and corporate bonds and stocks. When the economy is overheating, they sell securities to recoup currency, and when the economy is in recession, they buy securities to increase the money supply.

The Real Power of the Federal Reserve Chairman

From February 1, 2018 to the present, the chairman of the Federal Reserve (Fed) has been Jerome Powell, a non-economist we are all familiar with.

The Fed’s influence on the global economy, coupled with the global influence of the United States, makes it the second most powerful economic president in the world after the president, with the power to make or break the global economy based on what the chairman says or does. When it comes to the Fed’s FOMC meeting season, all media and experts around the world pay attention to the Fed chairman’s remarks, so the impact of the Fed chairman’s remarks can be said to be enormous.

Results of the July FOMC rate decision

The Federal Open Market Committee (FOMC) is a branch of the Federal Reserve responsible for establishing and implementing open market operations. The FOMC publishes a monthly policy report on open market operations, which sets the open market operations policy and sets the monetary policy of the Federal Reserve based on changes in the volume of money.

At its July 25-26 meeting, the FOMC voted unanimously to raise the target range for the federal funds rate by 25 basis points (5.00 to 5.25% to 5.25 to 5.50%) and to continue its previously announced plans to reduce its balance sheet. Here are the reasons for these policy rate decisions.

Recent indicators suggest that economic activity is expanding at a moderate pace
Employment has been solid in recent months, and the unemployment rate has remained low
Inflation remains elevated
The U.S. banking system is sound and resilient, and tighter credit conditions for households and businesses are likely to weigh on economic activity, employment, and inflation, although the extent of the impact is uncertain.
The FOMC is paying close attention to inflation risks.

It was against this backdrop that the July policy rate decision was made, with the FOMC stating that it seeks to achieve its objectives of full employment and 2 percent inflation over the longer term, and that it will consider the cumulative effects of monetary policy tightening, the lags over which monetary policy affects economic activity and inflation, and economic and financial conditions when determining the appropriate degree of further tightening to return inflation to 2 percent over time.

In response to a question about the likelihood of further rate hikes, Chair Powell said that the Committee would decide that at each meeting and would assess the need for any additional tightening that might be appropriate by looking at the broader overall picture. The Committee would look at a number of indicators and could choose to raise or hold rates again at the September meeting if the data indicated that it was necessary.

FOMC schedule for August 2023 and beyond

Following the July FOMC US policy rate decision, the August FOMC is not scheduled. The remaining FOMC dates for 2023 are as follows

September 21, 2023
November 2, 2023
December 14, 2023