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Pros And Cons Of The Federal Reserve System

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The Federal Reserve is the centralized banking system of the United States. It was designed to provide the US with a safer, more flexible, and more stable monetary and financial system (federalreserve.gov). The Federal Reserve uses various tools such as open market operations, reserve requirement, discount window lending, or quantitative easing when it comes to conducting the monetary policy. Even though some may argue on weather why they believe the Federal Reserve System is or is not beneficial to our economy, the Federal Reserve Act is still one of the most talked about laws concerning the US financial system today.
The Panic of 1907 inspired the implementation of monetary policy and led to the creation of the Federal Reserve System and the Federal Deposit Insurance Corporation (Moen and Tallman). The Panic of 1907, was one of the worst economic recessions in US history at the time. The stock market collapsing, banks were in crisis due to subsequent bank runs, and credit started to evaporate with expansion. The US believed the reason behind all of this was due to the lack of structure and the fact that there was no centralized bank. On December 23, 1913, congress established the Federal Reserve Act which was signed into law by President Woodrow Wilson (federalreserve.gov). After many …show more content…

It is when the Federal Reserve purchases and sells securities in the open market in order to expand or contract the money in circulation. The goal of implementing open market operations is to control interest rates. To increase interest rates the Feds will sell securities to banking institutions. To decrease interest rates the Feds will buy securities from these banking intuitions (Amadeo). Any type of depository institution must meet reserve requirements. Open market operations is an very important factor that is tied to the monetary policy because it is correlated with inflation and economic

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