The Federal Reserve explained
The US central bank assets increased to almost $9 trillion in March 2022.
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.
The Fed uses interest rates to balance employment and inflation.
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.
Interest rates have exceeded 4.0% since December 2022.
Federal funds effective rate by month, July 1954–August 2025
Beyond setting interest rates, the Federal Reserve plays a key role in keeping the financial system functioning, especially during economic stress. It does this by supporting banks, reducing financial risks, and protecting consumers and communities.
How the Fed supports the economy:
Supporting banks
During crises like the Great Recession and the COVID-19 pandemic, the Fed used quantitative easing to inject liquidity into the financial system so that banks could continue lending.
Reducing financial risks
The Fed monitors banks for emerging risks, provides emergency support when needed, and ensures payment systems continue to function.
Protecting consumers
The Fed enforces laws such as the Truth in Lending Act and Fair Housing Act and supports programs that expand access to credit, especially in underserved communities.
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.
The Federal Reserve has assets. It doesn’t get money from taxpayers or Congressional appropriations.
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
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) makes monetary policy decisions.
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 provide local support.
There are 12 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 oversees the Federal Reserve system.
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.
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