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Special Report: The Fed

The Federal Reserve promises swift action after US inflation rises to 8.5%. A review of the Fed's pivotal role in economic policy.
Special Report: The Fed

The Federal Reserve System, commonly referred to as the Federal Reserve or the Fed, is the central bank of the United States. According to its website, the Federal Reserve "performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest."

The Fed...

  1. Conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
  2. Promotes the stability of the financial system;
  3. Promotes the safety and soundness of individual financial institutions;
  4. Fosters payment and settlement system safety and efficiency;
  5. Promotes consumer protection and community development.

Please note that the Fed's functions were edited for brevity.

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The Federal Reserve System was created on December 23, 1913, after a series of financial panics led to a need for central control of the monetary system to intervene and alleviate financial crises. It's main governing body, the Board of Governors, is typically referred to as the Federal Reserve Board, and steps in when needed to adjust monetary policy to adapt to changing economic conditions.

For example, hours after the release of the Labor Department's 8.5% inflation report on Tuesday, "a top Federal Reserve official said the central bank will raise rates expeditiously to reduce soaring inflation and expressed confidence in its ability to moderate price pressures without triggering an economic downturn," writes Nick Timiraos and Michael S. Derby for the Wall Street Journal.

Fed’s Brainard Expresses Confidence in Ability to Reduce High Inflation (Nick Timiraos and Michael S. Derby - Wall Street Journal)

Excerpt from Wall Street Journal: “Inflation is too high, and getting inflation down is going to be our most important task,” said Fed governor Lael Brainard, who is awaiting Senate confirmation to serve as the Fed’s vice chairwoman. Ms. Brainard spoke at The Wall Street Journal Jobs Summit as the central bank has telegraphed what could be its most aggressive effort in decades to raise interest rates.
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This sentiment was also echoed in an interview with CNBC on Wednesday as Federal Reserve Board member Christopher Waller said, "Getting inflation under control will require raising interest rates at a faster pace than normal even though the pace of price increases probably has peaked."

"That means the central bank likely will hike short-term rates by half a percentage point, or 50 basis points, at its meeting in May, and possibly follow it up with similar moves in the next several months, The Fed normally increases in 25-basis-point increments. A basis point equals 0.01%," writes Jeff Cox for CNBC.

Fed’s Waller sees likelihood of multiple half-point interest rate hikes ahead (Jeff Cox - CNBC)

Excerpt from CNBC: Waller said he thinks the central bank can pull off the tighter policy now because the economy is strong enough to support higher rates. The Fed is looking to raise rates to stave off inflation running at its highest levels in more than 40 years. "I think we’re going to deal with inflation. We’ve laid out our plans," he said. "We’re in a position where the economy’s strong, so this is a good time to do aggressive actions because the economy can take it."
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