The Federal Reserve System Fed

The United States went without a central bank for most of the nineteenth century after Andrew Jackson killed the Second Bank in 1836, and suffered a banking panic roughly once a decade. After the Panic of 1907 had to be stopped by J. P. Morgan personally, Congress designed a system that would spread power between Washington and the regions, between public officials and private banks. Woodrow Wilson signed the Federal Reserve Act on December 23, 1913. The Banking Act of 1935 centralized authority in the Board of Governors and created the Federal Open Market Committee in roughly its present form.

The system has three layers. The Board of Governors in Washington, seven members appointed by the President and confirmed by the Senate for staggered fourteen-year terms, sets policy and supervises the system, and its Chair and Vice Chair serve four-year terms in those roles. Twelve regional Federal Reserve Banks, from Boston to San Francisco, are technically owned by member banks in their districts and carry out operations. The Federal Open Market Committee, made up of the seven governors, the president of the New York Fed, and four other regional presidents in rotation, sets the target for short-term interest rates eight times a year.

Congress gave the Fed a dual mandate in 1977: maximum employment and stable prices, which it interprets as two percent inflation. It pursues them chiefly by moving the federal funds rate and, since 2008, by buying and selling large quantities of Treasury and mortgage securities. It also supervises the largest banks, runs the payment systems that move trillions of dollars a day, issues the paper currency printed by the Treasury, and lends to the financial system in a crisis, as it did on an enormous scale in 2008 and 2020. It funds itself from the interest on its holdings and sends the surplus to the Treasury.

The Fed's independence is a matter of law and custom rather than the Constitution. Its decisions do not require approval by the President or Congress, and governors can be removed only for cause. Presidents have pressured Fed chairs before, most famously Lyndon Johnson and Richard Nixon, but never as openly as in 2025, when the President repeatedly demanded lower rates, attacked the Chair, and moved to fire a sitting governor, a step the Supreme Court agreed to review. Supporters of the pressure argued that an unelected board should answer to voters. Economists across the spectrum warned that markets would charge more to lend to a country whose central bank took orders from the White House. Jerome Powell's term as Chair ended in May 2026.