By Indexopedia Research Team | September 5, 2024 | In
The U.S. Federal Reserve, commonly referred to as the Fed, plays a pivotal role in the American economy. As the central bank of the United States, its primary function is to manage the country’s monetary policy. This involves a complex process of setting interest rates, regulating the money supply, and ensuring the stability of the financial system. For affluent investors, understanding how the Fed sets policy is crucial, as its decisions can have far-reaching effects on investment portfolios, particularly those with significant exposure to interest rate-sensitive assets, as we will discuss in more detail later. The Structure of the Federal Reserve To fully grasp how the Fed sets policy, it’s important to first understand its structure. The Federal Reserve System is made up of three key entities: The Board of Governors: Located in Washington, D.C., the Board of Governors consists of seven members appointed by the President and confirmed by the Senate. These governors serve staggered 14-year terms to ensure stability and continuity in monetary policy. The Twelve Regional Federal Reserve Banks: Each of these banks serves a specific region of the U.S. and operates