Federal Reserve

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SeekingAlpha  10 hrs ago  Comment 
By John M. Mason: Only two more months to go until the Federal Reserve ends its tapering exercise. This month the Fed is expected to add only $15.0 billion to its securities portfolio. Then $5.0 billion in October. Then…well we really don't...
SeekingAlpha  Sep 1  Comment 
By David I. Templeton, CFA: David Blitzer, Chairman of the Index Committee for S&P Dow Jones Indices, recently highlighted research results showing excess returns are generated around FOMC meeting dates. The research paper, Stock Returns Over The...
Clusterstock  Sep 1  Comment 
Change could be coming to the Fed. In a note to clients, Lew Alexander at Nomura writes that the Fed is likely to make "significant changes" to its forward guidance. Forward guidance refers to the language the Fed uses when it tells the public...
Disciplined Approach to Investing  Aug 31  Comment 
David Blitzer, Chairman of the Index Committee for S&P Dow Jones Indices, recently highlighted research results showing excess returns are generated around FOMC meeting dates. The research paper, Stock Returns Over The FOMC Cycle, evaluates the...
The Hindu Business Line  Aug 31  Comment 
The Fed can increase the interest rate earlier than expected, dimming prospects for the yellow metal
SeekingAlpha  Aug 31  Comment 
By Eric Parnell, CFA: The Federal Reserve's persistently aggressive monetary policy has had a paralyzing effect for many investors over the last several years. Like a skillet of boiling hot milk being emptied on one's foot, repeated monetary...
SeekingAlpha  Aug 30  Comment 
By Alasdair Macleod: In recent months, talking heads, disappointed with the lack of economic recovery, have turned their attention to wages. If only wages could grow, they say, there would be more demand for goods and services: without wage...
SeekingAlpha  Aug 29  Comment 
By Hawkinvest: The stock market is trading near all-time highs and the real estate market is looking speculative in many regions once again. The Federal Reserve has certainly accomplished the goal of re-inflating asset values and that means it is...
Financial Times  Aug 29  Comment 
The Federal Reserve is looking at letting banks use certain types of municipal bonds to comply with a new set of rules on liquid assets
SeekingAlpha  Aug 29  Comment 
By Edward Hoofnagle, CFA: Despite the financial media's focus on the termination of QE efforts at the Fed, the balance sheet continues to grow into uncharted territory. The following graph illustrates the trend in the assets held by the Fed over...




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The Federal Reserve is the third central bank of the USA. It was legally established on December 23, 1913, when US president Woodrow Wilson signed the Federal Reserve System Act. The Federal Reserve was blamed to have deepened the Great Depression after the crash of 1929. In a panicky reaction it then deflated money supply, causing a lasting and deep economic contraction.

In the inflationary period from 1973 - caused by the first oil shock - to 1981 chairman Paul Volcker managed to battle inflation successfully by raising the leading interest rate to more than 20%. At the same time Volcker succeeded in keeping the economy out of a drawn-out recession.

The policy style changed with the nomination of Alan Greenspan in 1987. Only 2 months into office Greenspan was confronted with the Black Monday of 1987, when the Dow Jones Industrials Average fell 22%, its biggest loss ever in a day. Remembering the fatal results of tight liqudity after the crash of 1929 Greenspan offered banks all the funds they needed in order to avoid a meltdown of the stock market. Alan Greenspan can also be credited with blowing up the biggest debt bubble of all times in the new millennium. By lowering the Fed Funds rate to a record low of 1% the Federal Reserve contributed heavily to the American housing boom that turned out to be a bubble based on easy credit. Greenspan conceded in 2008 to Congress that he erred on wrong side when the Federal Reserve thought that the financial industry should not be burdened with more oversight. At this time the USA had fallen in the biggest financial crisis ever.

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The Federal Reserve Banks

The 12 Federal Reserve Banks were established by Congress as the operating arms of the nation's central banking system. Many of the services provided to depository institutions and the federal government by this network of Reserve Banks are similar to services provided by commercial banks and thrift institutions to business customers and individuals.

Reserve Banks

  • hold the cash reserves of depository institutions and make loans to them
  • move currency and coin into and out of circulation, and collect and process millions of checks each day
  • provide checking accounts for the Treasury, issue and redeem government securities, and act in other ways as fiscal agent for the U.S. government
  • supervise and examine commercial banks that are members of the Federal Reserve System for safety and soundness
  • participate in the activity that is the primary responsibility of the Federal Reserve System, the setting of monetary policy.
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