If you’re serious about investing, and anyone who is investing their funds in any market should be, then it’s important to understand precisely how the economy and government work together. An important aspect of the United States economy and government is the powerful Board of Governors of the Federal Reserve. Here is a guide to this body of individuals:
First of all, the Federal Reserve is America’s central bank. It is not closely tied to the executive branch but it has tremendous power over the nation’s economy and government. The Federal Reserve was created in 1913 when President Woodrow Wilson signed the Federal Reserve Act. In general, the Federal Reserve’s mission is to monitor the nation’s banks with the authority to make monetary policy (via setting the discount rate and the reserve ratio), control the flow of currency, and engage in other economic research. Its goals are primarily to encourage full employment, deter inflation, and generally stabilize and secure the nation’s economy. From the bottom to the top of the Federal Reserve is made up of commercial banks, Federal Reserve banks, the Federal Open Market Committee, and then the Board of Governors.
Congress set up the Federal Reserve Banks; they serve the government and consequentially help the national banking system achieve its goals. Reserve Banks are very much like commercial banks, with the exception that the U.S. government is its client – rather than an individual U.S. citizen. Also, the Federal Reserve has authority over commercial banks.
Considering the importance of the Board of Governors in affecting monetary policy and thus the general health of the United State’s economy and government, you might wonder who the Board of Governors actually are. The President of the United States appoints the members of the Board of Governors and the Senate approves these appointments, but who are these influential people?
There are seven members of the Board of Governors, and every two years, a new term begins. (The Chairman serves in four year terms.) However, a member can stay on board for up to fourteen years! Dr. Ben S. Bernanke is the current Chairman and he was sworn in February 2006. He came from the Federal Reserve’s Federal Open Market Committee, so he’s certainly no stranger to formulating monetary policy. An investor should always take note when a new member hops on the board as any changes in the Federal Reserve Board can have a significant impact on the economy.
The Vice Chairman, as of July 2006, is Donald L. Kohn, who boasts published works on monetary policy and experience with the Federal Reserve. It won’t be until 2010 that the Board’s leadership will change. Other members include Susan Bies, Kevin Warsh, and Randall Kroszner. Both Warsh and Korszner are recent additions as they were appointed in 2006.
Hopefully this information can arm you with more confidence as you investigate the economy in which you might be eager to invest. If you want to understand the health of the economy and government, it’s important to understand how it’s affected - and the Federal Reserve plays a huge role.