The Federal Reserve, also known as "the Fed," is the central bank of the United States. It was established in 1913 to manage the nation’s monetary policy and respond to stresses in the banking system.
What does the Fed do?
The Federal Reserve uses its monetary policy tools to influence the national economy. In practice, this means the Fed manages interest rates and the money supply to support job growth and keep prices steady. Supporting maximum employment and stable prices is known as the Fed’s “dual mandate.”
The Fed makes short-term changes in interest rates to influence long-term economic growth and stability. The Fed aims to maintain a 2% inflation rate (although it’s been known to set a higher short-term inflation target to manage economic stability). The Fed closely monitors the core Personal Consumption Expenditures index, or core PCE, when making decisions about interest rates and mediating inflation.
To manage the economy, the Fed uses a strategy called quantitative easing. Quantitative easing allows the Fed to buy assets from other banks in times of crisis, improving those banks’ liquidity and giving them the ability to loan more money. It did this at the onset of the COVID-19 pandemic, increasing the money supply to support lending to businesses and individuals, as well as during the Great Recession.
Our government is complex. Our data doesn’t have to be.
Subscribe to our weekly newsletter to get data-backed answers to today’s most debated issues
The Fed also helps prevent financial crises by monitoring risks in the banking system and stepping in when problems arise. It can do this by providing emergency loans to banks, coordinating with other regulators, or taking enforcement actions to address unsafe practices (like making too many loans without collateral, or not keeping enough capital to cover losses or withdrawals). It oversees banks to make sure they follow the rules and operate safely and keeps payment systems like check clearing and electronic transfers running smoothly.
Finally, the Fed has responsibilities related to consumer financial regulations and community development, including in underserved areas. This includes enforcing laws like the Truth in Lending Act and Fair Housing Act, monitoring banks for compliance, and supporting programs that expand credit access, promote financial education, and encourage local economic growth.
How is the Fed funded?
As a fully operational bank, the Federal Reserve has assets. It doesn’t get money from taxpayers or Congressional appropriations; it's a financially self-sustaining entity. The Fed Reserve buys Treasury-backed securities in the open market and earns money via interest on those securities, as well as through fees on services like check clearing and funds transfers.
As of March 2025, the Federal Reserve had $6.6 trillion in total assets. Its holdings have exceeded $6.0 trillion since April 8, 2020, when it used quantitative easing to buy up several trillion from other banks.
Federal Reserve assets have exceeded $6T since April 2020.
Federal Reserve total assets, Dec 2002–July 2025
How is the Fed structured?
The Federal Reserve operates through three entities: the Federal Open Market Committee (FOMC), the Federal Reserve Banks, and the Board of Governors.
The Federal Open Market Committee (FOMC)
The FOMC is made up of the seven members of the Board of Governors (see below) and five of the 12 regional Federal Reserve Bank presidents. The Committee meets eight times per year and is probably the most recognized part of the Fed.
FOMC has three Congressionally mandated goals: maximizing employment, stable prices, and moderate long-term interest rates. Its main tools are the power to set targets for the federal funds rate, which influences interest rates throughout the economy, and quantitative easing.
The Federal Reserve Banks
There are twelve Federal Reserve Banks throughout the country, and each bank covers a district made up of at least one state.
Within its territory, a Reserve Bank carries out Federal Reserve functions, such as tailoring interest rates and policy decisions to their areas and supervising state member banks. They also enforce compliance with fair-lending and consumer protection laws, distribute currency to banks, and issue and redeem US government securities.
The Board of Governors
The Board of Governors is made up seven members who are nominated by the president and confirmed by the Senate. They supervise all five of the Fed’s key functions, oversee the 12 regional Federal Reserve Banks, and help create financial regulations. Although members are nominated by the president, the Fed itself is an independent organization.
Board members serve staggered 14-year terms. From among them, the president appoints a Chair and a Vice Chair, each serving a separate four-year term in those leadership roles.
Learn more about the federal money supply and get the facts straight to your inbox by signing up for our weekly newsletter.
