Editor's note: From Federal Reserve Chair Yellen's speech at the University of Massachusetts: 'It will likely be appropriate to raise the target range of the federal funds rate sometime later this year and to continue boosting short-term rates at a gradual pace thereafter as the labor market improves further and inflation moves back to our 2% objective.' - Tom
Upcoming: The US Federal Reserve Chair Janet Yellen is due to speak on inflation at 5pm ET at the University of Massachusetts. The financial world will be listening for hints the bank may hike interest rates for the first time since 2006.
Editor's note: Ninety minutes into the trading day the Dow is down roughly 250 points. Analysts point to investor fears over the global economy, and concerns the Federal Reserve sent the wrong message to markets in keeping interest rates unchanged last week. - Tricia
Editor's note: US markets are trading lower with MarketWatch reporting that traders are interpreting Thursday's Federal Reserve decision as confirming fears about global growth. At 11:40am ET, the Dow was off 180. - Tom
The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded, and its structure has evolved. Events such as the Great Depression in the 1930s were major factors leading to changes in the system.
The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximum employment, stable prices, and moderate long-term interest rates. The first two objectives are sometimes referred to as the Federal Reserve's dual mandate. Its duties have expanded over the years, and as of 2009 also include supervising and regulating banks, maintaining the stability of the financial system and providing financial services to depository institutions, the U.S. government, and foreign official institutions. The Fed conducts research into the economy and releases numerous publications, such as the Beige Book.
The Federal Reserve System's structure is composed of the presidentially appointed Board of Governors or Federal Reserve Board (FRB), partially presidentially appointed Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks, and various advisory councils. The federal government sets the salaries of the Board's seven governors. Nationally chartered commercial banks are required to hold stock in the Federal Reserve Bank of their region, which entitles them to elect some of their board members. The FOMC sets monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time: the president of the New York Fed and four others who rotate through one-year terms. Thus, the Federal Reserve System has both private and public components to serve the interests of the public and private banks. The structure is considered unique among central banks. It is also unusual in that the United States Department of the Treasury, an entity outside of the central bank, creates the currency used. The Fed considers the Federal Reserve System "an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."
The U.S. Government receives all the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained. In 2010, the Federal Reserve made a profit of $82 billion and transferred $79 billion to the U.S. Treasury.