Fed Established By Congress

The US Federal Reserve has been in the news frequently for the last two months but there are many who have no idea just what the Federal Reserve does and what function it serves. Established by Congress in 1913, the Federal Reserve was designed to present the country with a more secure, more elastic, and more stable economic and financial structure. The Federal Reserve is also in charge of monetary policy and the management of banks. Probably the most important function of the Federal Reserve is to regulate the money supply so as to keep production, prices, and employment stable.

Fed Monitors the Economy

The economy is always best when it is growing. People have jobs, businesses are able to produce and the quality of life for the average citizen is better. When the economy is not growing the opposite takes place. Unemployment, a lack of productivity, and a lower standard of living are the sign of a downturn in the economy. The Federal Reserve has been entrusted by Congress to take measures to insure stability and to control inflation and interest rates. The actions of the Federal Reserve have profound effects on global interbank forex markets.

Setting Stable Interest Rates

Both business owners and consumers are concerned about interest rate stability. The US is a credit oriented society and stable interest rates are essential for the national economy to function. Without stable interest rates businesses and consumers find it difficult to plan for the future. The Federal Reserve sets basic bank lending rates and banks pass on any increase or decrease in rates to consumers. The rates set by the Federal Reserve also affect interbank forex lending.

Monitoring the Financial Sector

Maintaining the overall stability of the financial system is one of the top priorities of the Federal Reserve. A stable financial system allows businesses and students to get loans, and consumers to purchase goods and services. When the integrity of the financial system is threatened the Federal Reserve can institute corrective policies. Recently the Federal Reserve pumped billions into the banking system to rescue ailing banks and to ensure the availability of credit on both domestic markets and interbank Forex.

Maintaining A Strong Dollar

The US dollar is the world’s reserve currency and the Federal Reserve is charged with ensuring the stability of the US dollar. A strong dollar is essential for the US economy. Despite the near collapse of the US banking system and negative economic indicators the US dollar remains strong. A strong dollar will significantly contribute to economic recovery in the US and monetary policies set by the Federal Reserve are designed to have that effect.

The Fed and the Bailout

The Federal Reserve has been under immense pressure recently from congress and the public. Testimony before congress by Federal Reserve officials convinced many in congress to vote for the politically unpopular $700 billion dollar bailout bill. After weeks of uncertainty the effects of the bailout are starting to be felt by the financial sector. The dollar is doing well on Forex markets against most currencies except the Japanese Yen. Investors are turning to both the Dollar and the Yen for risk aversion.

In today’s global economy any action by the Federal Reserve can have global repercussions. In this time of volatile markets one can only hope the Federal Reserve continues to make the right decisions. The actions of the Federal Reserve could well affect interbank Forex markets well into the future.

Quick Forex Tip: Interbank FX traders are at the top tier of the global forex market. A majority of all daily transactions in forex markets are conducted by traders from ten large banks. Despite market manipulation by central banks many economists have cited forex markets as closest to the ideal of perfect competition - meaning that no market participant is large enough to set currency prices. As a result, forex trading has become popular with smaller investors because forex markets offer investors the opportunity to profit during troubled times , allowing them to offset losses in other markets.