Who owns the Federal Reserve in the United States? If this question is bogging your mind right now, well, you are not alone. Many people are actually curious about the ownership of the US Federal Reserve and you can’t blame them.
What is the Federal Reserve?
The Federal Reserve is the United States’ central bank. Any decision it makes has a direct impact on the economy of the US and thus, the world as a whole. The position of the Federal Reserve is what gives it the most power when it comes to the global economy. This is not a government agency or a company. Its leader is not an elected official. It is probably the reason why many people find it a bit suspicious since this is not subject to both shareholders and voters.
So, Who Actually Owns the Federal Reserve in the United States?
The Federal Reserve Act of 1913 established the Federal Reserve as an independent entity. During that time, US President Wilson preferred a central board appointed by the government. Congress, on the other hand, wanted the Federal Reserve to have 12 regional banks that will represent the diverse regions of America. The compromise implicated that the Federal Reserve has both.
The Congress and the president must approve every member of the Federal Reserve Board of Governors. However, the terms of the board members intentionally don’t coincide with the terms of elected officials. The Federal Reserve Chair is appointed by the president. Congress has to approve the appointment of the president. The Chair should report on the actions of the Fed to Congress.
Congress can change the statutes that govern the Fed. The Board is the federal government’s independent agency. However, the president, legislators, or elected officials don’t need to approve its decisions.
The Fed also doesn’t receive funding from Congress. The funds instead come from the investments it makes. It collects interest from the US Treasury notes it gathered as part of the open market operations. This also receives interest on foreign currency investments. The banks under it receive fees for the services they provide to commercial banks such as automated clearinghouse operations, funds transfers, and check clearing. The Fed receives interest on the loans this makes to the member banks. These funds are then used for paying its bills and any profit gets turned over to the United States Treasury Department.
Why the Federal Reserve Should Remain Independent
The monetary policy of the Federal Research can do a better job if it is kept away from short-term political influence. This should be free to set expectations, specifically about inflation. It won’t be able to achieve it if its leaders are always worried that an elected official will fire them.
With only one exception, all the chairs of the Fed have been well-known academic economists with expertise on central banking, finance, and public policy. Their expertise and not their charisma, public speaking skills or large fan base make them valued. They are used to a type of environment wherein ideas are rationally evaluated, debated, and discussed. If politics controls the Federal Reserve, it wouldn’t be able to attract people with such professional caliber.