Federal Reserve (the Fed)
The Federal Reserve is the central bank of the United States, responsible for monetary policy, bank supervision and the stability of the financial system.
Created in 1913, the Fed consists of a Board of Governors in Washington, D.C., and twelve regional Federal Reserve Banks. Congress gave it a dual mandate: maximum employment and stable prices. The Fed has defined price stability as inflation of 2% over the longer run, measured by the PCE price index.
Its main tool is the federal funds rate, set by the Federal Open Market Committee. Lowering the rate tends to stimulate borrowing, spending and asset prices; raising it tends to cool demand and inflation. The Fed can also buy or sell securities through quantitative easing or tightening and acts as lender of last resort during crises.
Markets watch the Fed closely because its decisions influence bond yields, mortgage rates, the dollar and stock valuations. Statements, press conferences and speeches by the Fed chair can move markets within minutes.
Example: when the Fed signals rate cuts, bond yields often fall and interest-rate-sensitive stocks may rise.